Tax Saving Fixed Deposit (FD)

What is a Tax Saving Fixed Deposit?

A Tax Saving Fixed Deposit is a type of fixed deposit that offers tax benefits to investors under Section 80C of the Income Tax Act. These deposits allow individuals to save on taxes while earning a stable return on their investment. The lock-in period and interest rates make them an attractive option for those looking to combine tax savings with fixed returns.

Who Can Invest in Tax-Saving Fixed Deposits?

Anyone who is a resident of India can invest in a Tax Saving Fixed Deposit. Both salaried and self-employed individuals are eligible to open a Tax Saving FD.

Duration of the Lock-In Period for Tax-Saving Fixed Deposits

The lock-in period for a Tax Saving Fixed Deposit is 5 years. During this time, the amount invested cannot be withdrawn, and no premature withdrawals are allowed.

Minimum and Maximum Investment Amounts for Tax-Saving Fixed Deposits

The minimum investment amount for a Tax Saving Fixed Deposit is typically ₹ 100, and the maximum amount that can be invested in a financial year is ₹ 1.5 lakh. These limits are set to align with the tax deduction limits under Section 80C.

Current Interest Rates for Tax Saving FDs

Tax Saving Fixed Deposit interest rates vary from bank to bank. As of now, the interest rates generally range between 5% to 7% per annum. It’s advisable to check with specific banks for the most current rates. With Airtel’s Fixed Deposit, one can earn upto 8.15% and get an ROI of around 9.50%.

Tax Deductions Under Section 80C & How to Claim Tax Deductions

Investments in Tax Saving Fixed Deposits qualify for tax deductions under Section 80C of the Income Tax Act. You can claim a deduction of up to ₹ 1.5 lakh in a financial year. To claim this deduction, you need to provide the fixed deposit receipt and other relevant documents while filing your income tax returns.

TDS (Tax Deducted at Source) on Interest earned from Fixed Deposits

Interest earned from Tax Saving Fixed Deposits is subject to TDS (Tax Deducted at Source). If the interest earned exceeds ₹ 40,000 in a financial year, the bank will deduct TDS at the rate of 10%. You can submit Form 15G or Form 15H if you are not liable to pay tax to avoid the TDS deduction.

Maturity, Renewal and Reinvestment Options of Tax Saving FD’s

Upon maturity, you have the option to either withdraw the amount or reinvest it in another fixed deposit. Banks usually provide an automatic renewal option, where the FD is renewed for the same tenure at the prevailing interest rates. You can also choose to reinvest the maturity amount in other investment schemes offered by the bank.