Things You Need to Know About Tax Saving Fixed Deposits
Insurance, mutual funds, NSCs… have you already invested in all? Or is it almost the last day for submitting tax saving documents and you do not know where to invest? Well another great tax saving option that you have just a hand away is the tax savings fixed deposit. Fixed deposits now save tax as well! A fixed deposit refers to the one time lump sum investment for a fixed amount of time and for a fixed interest rate. Let us checkout some of the interesting and important facts about tax saving fixed deposit.
It saves tax under section 80C
The tax exemption for tax saving FD is available under Section 80C of the Indian Tax Act, 1961. The maximum amount of deduction or exemption that can be achieved by investing in this kind of fixed deposit is Rs1.5 lakh. The minimum amount which can be invested in this tax saving fixed deposit is Rs100. Though the main amount deposited is tax free, the interest earned on the fixed deposit is taxable. Also, the tax saving fixed deposit saves tax only in the year when the investment is made. If the FD has joint holders only the first holder will get the tax saving benefit.
It gives a higher rate of interest
Another reason why investors should opt for a tax saving fixed deposit is, it offers higher rate of interest than a standard savings account; at present tax saver FD interest rates are 6.5% for general and 7% for senior citizens while the interest rate on standard savings account is 5%.
It comes with a lock in period of 5 years
Standard fixed deposits can be redeemed at any point of time but the tax saving fixed deposit can only be withdrawn after a minimum of 5 years and can be deposited for a maximum of 10 years. Also overdraft and loan facilities are not available on tax saving FD. Though premature or partial withdrawal of funds is not available, investors can opt to take the complete amount at the time of maturity or take the interest on quarterly basis. There is nomination facility available like other modes of investment.
It is one of the safest investment options
Tax saving mutual funds or other modes of savings which provide high rate of interest are dependent on the market. While the chances of profit are more, the risks of loses also remain in this kind of deposits. For this reason, tax saving fixed deposit is a safe bet as taxes saving FD rates are fixed; these provide more profits and also do not depend on the market fluctuations.
It can be opened only at banks
Tax saving fixed deposit can be opened both at private and nationalised banks. You can either open it online at a bank’s website or at the branch. When the FD matures, the amount is returned to the savings account of the individual or the joint holder. On request, the fixed deposit can be transferred from one bank branch to the other.
Anyone can open a tax saving fixed deposit
Individuals above the age of 18 can open a tax saving fixed deposit. Besides Indian residents, HUFs, NRIs and senior citizens can also invest in tax saving FD.
So if you are looking for a safe, lucrative and super fast investment option, the tax saving fixed deposit is your ideal option.
Tax saving fixed deposit can save tax up to Rs1.5 lakhs. The minimum amount which can be deposited is Rs100 and the lock in period ranges between 5 to 10 years. Know more about Tax Saving Fixed Deposits here.