Everything you Need to Know About a Tax-Saving FD

  • Deposit
  • 3 Days ago

Written by - Shriram

A Tax-Saving Fixed Deposit is a scheme through which you get tax deductions under Section 80C of the Income Tax Act, 1961. The lock-in period for a tax-saving FD is 5 years. If the financial institution has special schemes for senior citizens, they enjoy higher interest rates on their tax-saving FD. One of the best features of a tax-saver deposit is that it has the guarantee of assured returns.

A regular fixed deposit is a savings scheme that offers higher returns than a savings account. To open an FD (Fixed Deposit), you must invest a lump-sum amount for a period with predetermined interest rates. The returns on an FD are assured, and it is not impacted by market fluctuations, making a fixed deposit the popular investment option.

With a Shriram Fixed Deposit, you get the extra interest of 0.25% per annum on all renewals of matured deposits. A Shriram FD will allow you to plan your investments for short and long-term financial goals. You can also easily withdraw your FD amount in times of emergency.

A tax-saving fixed deposit can help you save taxes and give you assured returns upon the maturity of your FD. Let us look at some key benefits that make a tax-saving deposit an excellent investment option.

Advantages of a Tax-Saving Fixed Deposit

  • Assured Returns:
The returns on a tax-saving FD are assured upon maturity of the deposit. You can earn a safe and stable income at an attractive interest rate with the risk of market fluctuations.
  • Tax Benefit:
With a tax-saver FD, you can claim tax deductions against your deposit. You can claim deductions up to Rs. 1.5 lakh per annum, according to Section 80C of the Income Tax Act, 1961.
  • Nomination Facility:
A nominee is a person that can be assigned to take care of your investment in case of any unfortunate event. The choice of a nominee is up to the investor. While opening a fixed deposit account, the bank will ask you for the details of the selected nominee.
  • Deposit amount:
The minimum deposit amount depends on your chosen bank. Some financial institutions offer a minimum deposit as low as Rs. 1000. This makes it easier for people to invest in a tax-saving FD without worrying about putting away a large sum they might need later.
  • Short lock-in period:
A tax-saving FD has a reasonable lock-in period of only 5 years. Withdrawing the funds during this period will not be allowed, but you can get a regular interest payout through the non-cumulative FD facility.
  • Senior Citizen Benefits:
Most banks offer bonus interest exclusively for senior citizens. This raises the interest rate, allowing senior citizens to earn more from their fixed deposits. This increased interest rate applies to tax-saving fixed deposits as well. This way, senior citizens can save on taxes and earn more income through fixed deposits.

Facts to Remember while Investing in a Tax-Saving FD
  • The lock-in period for a tax-saver FD is 5 years.
  • Premature withdrawal and loans against these tax-saving FDs are not allowed.
  • A tax-saving FD can only be opened at a bank.
  • You can open a tax-saving FD with a minimum deposit according to the bank of your choice.
  • The maximum amount you can invest in a tax-saving FD is Rs. 1.5 lakh in a financial year.
  • You can open a tax-saving fixed deposit as an individual or joint account.
  • The tax benefit will only be available to the primary account holder if you have a joint tax-saving FD account.
  • The interest earned on a tax-saving deposit is subject to Tax Deduction at Source (TDS) as per the investor's tax bracket.
How to Pay Tax on Interest Income?
  • If there is tax owed due to incorporating FD interest in your total income, the tax should be paid on or before March 31st of each financial year.
  • Interest from your tax-saving FD must be reported as "Income from other sources" while filing taxes.
  • The tax slab you fall into will determine the tax charged on your FD.
  • It is not advisable to hold off reporting FD interest income till the maturity of the deposit. This is because the accumulated interest may push you up to a higher slab, and you might pay more tax later.
Eligibility to Open a Tax-Saving Fixed Deposit

A tax-saving deposit is easy to open, given that you meet the required eligibility criteria. To find out the particular requirements and qualifications, contact your bank. Generally, the standard measures include resident Indian citizens above 18 years of age and Hindu Undivided Families (HUF). Listed below are the documents you will need to apply for a tax-saver FD:
  • Permanent Account Number (PAN) Card
  • Aadhaar Card
  • Driving License
  • Passport
  • 2 recent passport-size photographs
Conclusion
  • A Tax-Saver Fixed Deposit can be very beneficial to achieving your financial goals.
  • Senior citizens can make the most of this opportunity if the financial institution offers additional interest for the elderly.
  • Opening an FD also serves as a healthy way to start saving money for a brighter future.
Open a Shriram Fixed Deposit today to get interest rates of up to 8.40% per annum, including 0.50% interest for senior citizens. Use the Shriram FD calculator to determine the interest you can get on a deposit of your choice.

FAQs

1.What is the benefit of tax saver FD?

The main benefit of a tax-saving FD is that you claim tax of up to Rs. 1.5 lakh per annum.

2. Which is better normal FD or tax saver?

A tax-saver FD may have many benefits, but a regular fixed deposit has more flexibility. Depending on your financial goals, you can invest in an FD scheme. A Shriram FD offers a range of tenure from 12 months to 60 months with an interest rate of up to 8.40% per annum.

3. Is the interest from a tax saver FD taxable?

Yes, the interest earned from a tax-saver FD is taxable. After adding the interest to your total income, you will be charged according to the tax slab you fall under.

4. Can tax saver FD be broken?

No, a tax-saver FD cannot be broken. The 5-year lock-in period will not allow you to withdraw money from your fixed deposit account. However, you can select a non-cumulative deposit before investing if you want to receive regular interest payouts.

Key Highlights:

•          You can claim tax up to Rs. 1.5 lakh per year with a tax-saver FD.
•          The lock-in period for a tax-saving FD is 5 years.
•          Senior citizens enjoy higher interest rates on a tax-saving FD if the bank has special schemes.
•          A tax-saving FD has the guarantee of assured returns upon maturity of the deposit.