Tax Saving FDs

Tax-saving FDs are quite popular among people who want to make a secure investment and save taxes simultaneously. These Tax-saving FDs enable an individual to save tax through investment under section 80C of the Income Tax Act. An individual can avail of a tax exemption of a maximum of Rs.1.5 lakh. Some of the most prominent Tax-saving FDs are offered by banks such as State Bank of India, Kotak Mahindra, HDFC Bank, PNB, IDFC Bank, Axis bank, and many more.

Nowadays, it has become very simple to apply for Tax-saving FDs, an investment in these FDs can be made through public or private sector banks. Furthermore, the money which is invested via Tax-saving FDs is to be cut from the gross total income to reach the taxable income.

Key features of Tax-saving FDs:

  • Tax-saving FDs are one of the best options to invest and save for the future. These FDs are available with a tenure range of 5 years to 10 years. One can invest and enjoy good tax benefits over it.
  • The interest rates that are offered over the Tax-saving FDs range from 5.30% p.a. to 6.00% p.a. for the common man
  • Another important aspect of these Tax-saving FDs is the deposit range where the minimum deposit shall be Rs. 100 to Rs. 1.50 lakh p.a.

What are the benefits of Tax-saving FDs?

  • An investor enjoys investment along with good tax benefits under the Tax-saving FDs. Such tax exemptions are as listed in Section 80C of the Income Tax (IT) Act, 1961.
  • Under the Tax-saving FDs, an individual is allowed premature withdrawal after the completion of 5 years lock-in period.
  • Apart from the above-mentioned benefits, various banks offer a 0.50% hike in interest rates to senior citizens under these FDs.
  • If not with an individual account, most Tax-saving FDs can be opened with a joint account as well. Howsoever, in the case of joint account, the tax benefits are only for the primary account holder.

Eligibility for Tax-saving FDs :

  • Only a resident of India is eligible to apply for the Tax-saving FDs.
  • Hindu Undivided Families (HUF) are also very well eligible to apply for the Tax-saving FDs.
  • A Tax-saving FD can also be opened on behalf of a child. The child will receive earnings from the FD when he/she will turn 18 years old or at the time when the FD will reach maturity. In this case, the parents or the guardian are simply in charge of the account.

Now, let us understand the Tax Saving FDs in an simple way :

For example, if Amit is in the highest tax bracket of 30% and put Rs. 1.5 lakh in the tax-saving
FD, then Amit can save up to Rs. 46, 350(Rs 45,000 in tax, plus Rs 1350 in cess).

What are the documents needed to open a Tax-saving FD?

A Tax-saving FD can be opened with a very simple process. It is easy to open, operate and beneficial for the investor in many ways. The following are documents that are needed at the time of opening a Tax-saving FD:

  • PAN Card
  • Aadhar card
  • Driving license
  • Passport
  • Ration card
  • Voter I-D card
  • Government recognized address proof
  • Age-proof (For senior citizens)
  • Two recent colour passport size photographs

Tax benefits over Tax-saving FDs :

Section 80C of the Income Tax Act allows tax benefits in the FDs. The main reason why most people opt for such Tax-saving FDs is that here an investor can claim a tax deduction for investments made in Tax-saving FD of up to Rs.1.5 lakh.

Tax-saving FDs are one of the oldest and entrusted investment instruments that offer the investor with guaranteed returns and that too without any risk element involved. Thus, these Tax-saving FDs are preferred over others as it assists the individual in better management of taxes. Tax exemptions are crucial because to some extent they reduce the financial burden on the investors. Save your taxes and make a secure investment with Tax-saving FDs.

Frequently Asked Questions

  • What is the minimum investment that a Tax-saving FD requires?
    It is necessary to deposit a minimum of Rs. 100 in such FDs.
  • Can an investor opt for premature withdrawal in tax-saving FDs?
    No, an investor cannot opt for premature withdrawals in Tax-saving FDs.
  • Does Tax-saving FDs offer senior citizens a different interest rate?
    Yes, indeed most of the banks offer a bit more interest rate to the senior citizens in Tax-saving FDs.
  • Is the interest income in Tax-saving FDs exempted from taxation?
    No, it is not exempted from the tax. The interest is taxed under the TDS.
  • Are the tax-saving FDs free from any kind of risk?
    Yes, the tax-saving FDs are mostly free from any kind of risk.
  • Under Tax-saving FDs, how much tax deduction can an investor claim?
    Rs. 1.5 lakh per annum is the tax deduction that an investor can claim under the FDs.
  • When does a Tax-saving FD matures?
    The Tax-saving FDs mature between the range of 5 years to 10 years.
  • Tax-saving FDs are mostly preferred by whom?
    The Tax-saving FDs are mostly preferred and invested in by individuals who seek to save money in taxes and those who want to make a secure investment.