Category: business classes

Things You Should Know About Tax-saving Fixed Deposits

When investors talk about tax-saving financial products, they generally do not consider a fixed deposit. This is because not many are aware that it is possible to get tax benefits by putting money in a tax-saving fixed deposit. Read on to know about this investment product in detail.

What is a tax-saving fixed deposit?

This investment option is like any other fixed deposit where you put in a lump sum in the account and earn interest on your capital. But there are two key differences between tax-saving fixed deposits and other regular fixed deposits—a five-year lock-in period and tax benefits. 

The money you invest in a tax-saving fixed deposit (FD) is tax-deductible up to INR 1.50 lakhs under section 80C of the Indian Income Tax Act, 1961. You can also add a nominee to your tax-saving FD account, who will be entitled to withdraw the fund prematurely if an unfortunate event leads to your absence. 

Features of a tax-saving FD

To help you understand tax-saving deposits better, here is a list of four things you should know about this instrument.

1. Investment flexibility

The tax-saving FD eligibility is flexible as anyone can invest in it, even with little money. The minimum investment amount for this product is INR 100, which allows you to start small. Moreover, the maximum amount you can invest in a year is INR 1.50 lakhs. 

2. Investment tenure

This Fixed Deposit option has a lock-in period of five years. So, you can only withdraw the accumulated fund after the fixed tenure is over. However, premature withdrawal is possible in certain conditions, such as the investor’s demise.

3. Interest rate

The tax-saving FD interest rates can change with time. But once you invest, the rate of interest offered on your capital remains fixed for five years.

4. Taxable income

The amount you invest in these FDs is tax-deductible, but your profit from the product is not. The interest earned from your investment in tax-saving FDs is taxed based on your income tax slab. Additionally, the banks charge a Tax Deducted at Source (TDS) of 10% if you earn over INR 10,000 in interest across all of your deposits in a financial year. The TDS amount will be 20% if you have not linked your bank account with your permanent account number (PAN).  

Due to high FD interest rates and tax benefits, tax-saving deposits have become popular among Indian investors. If you want to …