Tax Saving Fixed Deposits (FD) is a specialized deposit scheme that allows investors to claim tax deductions under Section 80C of the Income Tax Act, 1961. Investors in tax saver FDs are eligible to claim a tax deduction of up to Rs 1.5 lakh on their investment. Despite their tax-saving feature, tax-saving FDs function similarly to regular fds, with the maturity amount (principal + interest) being directly credited to your bank account. Tax-saving FDs come with a fixed 5-year lock-in period and typically offer interest rates between 5.5% and 7.75%.
Although the interest earned from these FD schemes is taxable, tax-saving fixed deposits remain a secure and straightforward option for last-minute tax planning.
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Tax Saving Fixed Deposits: Key Takeaways
- The minimum deposit amount starts from Rs 1,000 in these types of FD, whereas the maximum deposit amount in a financial year by an individual is Rs 1.5 lakh.
- Nomination facility is available for these types of FDs.
- Resident individuals and Hindu Undivided Family (HUF) are eligible to invest under this FD.
- Financial institutions do not allow customers to withdraw prematurely or take loans against these FDs.
- Meanwhile, public and private sector banks, excluding co-operative and rural banks, offer the option to invest in tax-saving fixed deposits.
- Tax-saving FDs can be opened in either single or joint names. However, in the case of joint accounts, the tax benefits will accrue solely to the primary account holder.
- For individuals, Tax Deducted at Source (TDS) applies when the total interest income from deposits exceeds Rs 40,000 in a financial year. Additionally, senior citizens can claim a deduction of up to Rs 50,000 on interest earned under Section 80TTB.
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