One of the safest and most lucrative tax-saving instruments could be the traditional bank FD schemes. It is the best investment solution for those investors who are looking forward to a low risk yet profitable tax-saving investment plan. Fixed Deposit schemes can be availed at public and private sector banks.
You can enjoy tax benefit in FDs permitted within the norms of Sec. 80C of Indian IT Act. You can enjoy tax deduction maximum up to ₹1 lakh and 50 thousand. FD schemes help reducing your total taxable income.
Why to Invest in Tax Saving Fixed Deposit Plans?
- Easy to Invest – As you can open FD account right in your savings bank, you can get the whole process done within few hours of time. This tax-saving investment can also be completed online through net banking from the comfort of your home.
- Safety – This fixed deposit tax saver is debt investment plan, hence, safer than ELSS tax saving investment. You can completely relax with your money invested in FD scheme. This is the safest mode of investment with guaranteed returns unlike the high risk factors associated with the equity based investments.
- Short Lock-in Term – Considering the debt investment plans with tax benefits within Sec. 80C, tax saver FDs come in with shortest lock-in time period of 5yrs. One may ask about 5yr NSC plan with the same tax-saving benefits. But it is to be noted that NSC schemes do not allow you to have periodic earning opportunity like tax-saving Fixed Deposits.
Chief Features of Tax-Saving FD
- Comes with a 5yrs maturity period.
- This tax-saving investment allows you to avail tax benefit up to ₹ 1lakh and 50 thousand.
- This tax deduction benefit is offered to individuals, HUFs, NRIs and also to the Senior Citizens.
- However, the income earned from the interest of FDs is taxable.
- This tax-saving investment FD allows choosing nominee for the account.
- Tax-saving FD can be held both as an individual and jointly.
- Loan facility cannot be availed in a tax saver FD.
- Premature withdrawals are not permitted.
Few Facts about Tax-Saver FDs to Know
- An individual person or Hindu Undivided Families can avail this tax-saving investment FD.
- This FD scheme can also be opened for a minor but along with parents.
- The sum to be fixed in this tax saver plan varies from one bank to another. The capping of ₹ 1lakh and 50 thousand defines the maximum saving limit of tax within the scheme.
- This tax-saver FD is available at any and every public and private sector banks but cannot be availed at co-operative banks or Rural Banks.
- 5yr Post Office FDs also offer you similar tax benefit facility.
- The FDs at Post Office are permitted to transfer from one PO to another.
- This tax-saving investment can be jointly held but the tax-saving benefits will only be available to the primary account holder and not to the second account holder.
- Remember, the income earned from the interest of the tax saver FD on monthly or on quarterly basis is subjected to tax and thus, TDS can be deducted. However, TDS deduction can be shunned by submitting 15G form and 15H form for senior people.
- FD schemes allow selecting nominee for your account but there is no provision of nominee for the account held by a minor.
- Senior people can enjoy the higher rates on fixed deposits but post-office offers same rate of interest for all.
TDS Saving Possible on Tax-Saving FD
Everyone wants to save every bit of their hard earned money. Check out the way through which you could save TDS:
- Declaration by Self – You can save your money from TDS by submitting properly filled 15G or 15H form to the bank. If the income earned from the interest of the tax-saving FD does not exceeds the taxable income during the given financial year, you can easily shun TDS on your tax-saving investment FDs. However, if the interest income exceeds the capping then tax will be deducted anyway.
- Submitting the Right Form – You must submit the correct form for saving TDS. Form 15G is applicable for the non-senior tax saver FD account holders and 15H Form is available for senior FD account holders.
- Proper Investment Planning – If you can plan your FD investment in such a way in which the income earned from the FD does not exceed the capping of ₹ 10 thousand a fiscal year, you can easily avoid TDS.
- TDS not Applicable for the Second Account Holder – In a jointly held tax-saving FD account the TDS deduction is only permitted on the first account holder and second FD account holder enjoys a waiver of TDS.
- Investment Distribution – You can avoid TDS by distributing the invested sum in different banks instead of investing all in the same bank.
- PAN Details – Keep it noted that by providing your bank complete details of your PAN, you can avoid higher rates of TDS deduction in case your interest income exceeds the capping.
Also Read: What is FD? guide for fixed deposit schemes