Tax Saving Fixed Deposit​: Everything Need to Know

Fixed Deposit is a good investment option for people who wish to invest a lump sum amount and earn interest. You can choose the fixed deposit tenure as per your convenience and the tenure ranges from 7 days to 10 years. Specifically talking about tax saving fixed deposits, the bank offers a 5-year FD scheme to save your tax. You can invest in a 5-year FD scheme under section 80C of the Income Tax Act, 1961, and enjoy the income tax benefits.

Here, we will learn all the details about Tax saving Fixed Deposits. 

What is Tax Saving Fixed Deposit? 

A tax saving Fixed deposit is a type of FD account offered by the bank, which provides the benefit of tax deduction under section 80C of the Income Tax Act, 1961. The tax-saving FD allows you to claim a deduction of up to Rs. 1.5 lacs annually. If you invest in a tax-saving FD scheme, you must know that this includes a 5 years lock-in period. It means you are not allowed to withdraw your money before 5 years tenure. Also, the interest on tax-saving fixed deposits​ will be taxable and will range from 5.5% to 7.75%. 

Key Features of Income Tax Saving Fixed Deposit​

Here are the main features of income tax saving fixed deposit​: 

• A tax-saving FD allows you to leverage the income tax exemption under 80C of the Income Tax Act 1961. You can claim up to Rs. 1.5 lacs FD income tax exemption annually. 
• The locking period for tax-saving FD is 5 years. 
• The interest on tax saving a fixed deposit​ is taxable and deducted at source. 
• Unlike regular FDs, You don’t get a loan or overdraft and are not allowed the premature withdrawal. 
• Auto renewal facility is not available in tax-saving FD.
• A flexible interest payout option is provided where you can choose to earn interest monthly, quarterly, or reinvest in principal. 
• The interest rate on tax-saving fixed deposits​ will remain unchanged for 5 years of tenure. 
• You may get different interest rates offered by different banks and financial institutions. 
• You can open a tax-saving FD account in single or joint mode. In the case of joint mode, the tax benefits will be given to only the first account holder. 

Benefits of Tax Saving Fixed Deposit​

A tax-saving FD offers various benefits to investors. The low-risk nature of the scheme provides security to the invested amount. The benefits are mentioned below: 

• You get a higher return on investment than the savings account. 
• In FD, you need to invest one lump sum amount for a fixed tenure. 
• The interest amount provided by the bank on FD is subjected to TDS. 
• The minimum tenure for tax-saving FD is 5 years. You can extend it further as per your requirements. 
• There is no minimum or maximum amount fixed to deposit in this scheme. You can deposit any amount at your convenience. 
• You get income tax deductions up to Rs. 1.5 lakhs yearly under section 80C of the Income Tax Act, 1961.
• There is no option for premature withdrawal. 

Who Should Invest in a Tax Saving Fixed Deposit? 

Tax saving fixed deposit is a good option for everyone but here are some things you must consider: 

• Near-retirement investors with low-risk tolerance: If you are going to retire soon and are not in the condition to bear any risk on your investment, A tax-saving FD is the best option for you. You will get guaranteed return and low risk.
• Looking to save taxes: If you are looking for an option to save tax, you can invest in tax-saving FD and enjoy Tax exemption under section 80C.

Documents Required to open Tax Saving FD? 

You will need the following documents to open a tax-saving FD:

• PAN Card 
• Aadhaar card / Driving Licence / Passport / Ration card / Voter ID
• Address Proof
• Age proof (For senior citizens)
• 2 recent passport-size photographs

Interest Rate on Tax Saving Fixed Deposit​ in India

Various banks and financial institutions offer different interest rates​, so you should compare and then choose the best tax saving fixed deposit​. The table below contains the Interest rate on tax saving fixed deposits offered by various banks in India. Please note that these tax saving fixed deposit interest rates​ are subject to change as per bank policy.

| You May Like to Read: How to Invest in Fixed Deposits

Things to Know about Tax Saving Fixed Deposit

Here are some of the important things that you should know about the tax saving FD before investing:

• As per the current tax policies, you can claim tax deductions up to Rs. 1.5 lakhs annually. 
• Only individuals and HUFs are allowed to invest in tax saving FD. Banks can ask you to invest a minimum amount. The lock-in period is 5 years and you cannot withdraw money before maturity. 
• Tax-saving FDs are available in public and private sector banks, not in cooperative or rural banks. 
• If you invest in a post office time deposit for 5 years, you will get the tax saving benefit. 

Conclusion

The individuals who are looking for investment along with saving taxes, a tax saving FD is the best option. You will get zero risk benefits and guaranteed returns along with tax exemption of up to Rs. 1.5 lacs annually under section 80C of the Income Tax Act 1961. Various banks have a minimum investment limit of Rs. 10,000 and the lock-in period is 5 years. 

FAQs

What is the minimum amount that I need to invest in tax-saving FD? 

Ans. The minimum amount required for tax saving FD differs as per bank policies. However, some banks have a minimum limit of Rs. 10,000. 

What is the maturity range for tax saving FD? 

Ans. The scheme maturity range is from 5 years to 10 years. You can choose the tenure as per your convenience and financial goals.

Can I make a premature withdrawal? 

Ans. No, tax saving FD does not allow the premature withdrawal option to the investors. 

How much tax deduction is allowed to claim with a tax saving fixed deposit? 

Ans. You can claim a maximum of Rs. 1.5 lakhs per annum income tax deduction with tax saving FD. 

Who must invest in tax-saving FD? 

Ans. Tax saving FD is the best option for those investors who have a low-risk appetite and require a guaranteed return.