A fixed deposit account comes in numerous forms to help individuals and entities to save funds for their future. The general FD accounts allow you to choose the tenure of the account based on your convenience. In addition to the general FD accounts, many banks offer a five-year FD scheme that is meant for tax saving.
One can claim an income tax deduction by investing money in a five-year FD scheme under Section 80C of the Income Tax Act, 1961. The features, benefits, and terms associated with this type of account may not be completely the same as the normal FD accounts. There are a number of things you need to know about such FD accounts to make use of the benefit.
Here’s everything you need to know.
RBI has announced a new rule applicable to unclaimed, matured FD accounts. That is the funds in an unclaimed, matured FD account will attract an interest rate as applicable to the savings account or the contracted rate of the matured FD, whichever is lower.
A tax-saving fixed deposit (FD) account is a type of fixed deposit account that offers a tax deduction under Section 80C of the Income Tax Act, 1961. Any investor can claim a deduction of a maximum of Rs.1.5 lakh per annum by investing in a tax-saving fixed deposit account. Some of its features are:
A fixed deposit account is a financial tool that has enjoyed the iron-clad trust of the general population over the decades when it comes to savings. Since it is a bank-based investment product closely monitored by the RBI, investors are assured of its safe and low-risk nature. The money deposited is also easily redeemable with interest upon maturity. Some of the benefits of FDs are:
Besides FD, there are many other tax-saving investment options that help you build your wealth, such as ELSS tax-saving mutual funds, PPF, and NSC. Fixed deposits are deemed as one of the safest savings options out there that offers capital protection and growth without falling victim to market highs and lows. However, the returns from this scheme are taxed.
This is where ELSS stands out with its dual-benefit—its returns are generally higher and tax-free. This, coupled with a mere lock-in period of 3 years, is all the more reason for you to invest in ELSS now.
|Investment Type||Returns||Lock-in Period||Tax on Returns|
|5-Year Bank Fixed Deposit||5% to 7%||5 years||Yes|
|Public Provident Fund (PPF)||7% to 8%||15 years||No|
|National Savings Certificate (NSC)||6% to 8%||5 years||Yes|
|National Pension System (NPS)||8% to 10%||Till Retirement||Partially Taxable|
|ELSS Funds||12% to 15%||3 years||Partially Taxable|
Anyone looking for a shorter lock-in period and seeking a guaranteed return with a tax-saving option should invest in tax-saving fixed deposits.
Investing in a tax-saving fixed deposit is very easy. You can open an account online or at a bank branch. Different banks offer different interest rates on tax-saving FDs, so it is best to compare rates before you make an investment.
Tax-saving fixed deposits are risk-free. The amount you invest in it is completely protected, and the returns are also guaranteed.
Tax-saving fixed deposits have a fixed interest rate that remains the same throughout the 5-year tenure. The interest rates for Indian citizens, HUFs and NRIs vary from bank to bank and get updated very often. Senior citizens and bank staff members are offered higher interest rates. The interest is taxable, deducted at source, and is to be added to your income.
The minimum investment that can be made in a tax-saving fixed deposit is Rs 100, whereas the maximum limit is Rs 1.5 lakh per financial year.
Individual account holders can get an income tax deduction for a maximum amount of Rs 1.5 lakh per financial year. In the case of joint holders, this tax benefit is available only to the first holder of the account. The other account holders cannot claim this benefit.
Tax-saving fixed deposits have a lock-in period of 5 years. No premature withdrawals, loans, or overdraft facilities are available against tax-saving FDs.
Resident Indian citizens, senior citizens, HUFs, and NRIs can invest in tax-saving fixed deposits.
When the fixed deposit term ends, the maturity amount will be transferred to your savings bank account associated with the FD account.
Tax-saving fixed deposits offer a nomination facility. A tax-saving FD can be transferred from one bank branch to another.