- Date : 24/03/2023
- Read: 3 mins
NBFCs and banks offer a financial option where you can deposit a lump sum for a fixed tenure.
Banks offer a tax-saving investment plan where you can receive a higher interest rate than savings accounts upon depositing your money. It is called a tax-saving fixed deposit or tax-saving FD. You may claim tax deductions under the Income Tax Act of 1961 and can deposit as a single or joint account holder. You can benefit from Section 80C to save tax. The first holder receives tax benefits in the case of joint holding. The maturity period extends to five years, and the deduction is available to individuals and HUF (Hindu Undivided Family) under Section 80C.
Working of a Tax-Saving Fixed Deposit
NBFCs and banks offer a financial option where you can deposit a lump sum for a fixed tenure. The tenure for a tax-saving FD is fixed at five years and offers a tax deduction under the Income Tax Act 1961, under Section 80C. The lock-in period ensures no premature withdrawal, and the deposit interest received is taxable. The saving account you use for the FD gets credited with the maturity amount upon maturity.
Features of Tax-Saving FDs
Tax-saving FDs provide an opportunity to build and collect adequate funds, providing tax benefits and good returns. Let's look at a few critical features of tax-saving FDs:
You can claim a tax deduction of up to Rs. 1.5 lacs under Sec 80C of the Income Tax Act 1961.
The tax on a tax-saving FD is deducted at the source of the interest earned.
The lock-in on a tax-saving FD is five years, and the interest rates remain unchanged during this tenure.
Auto-Renewal Not Available
A tax-saving FD does not have an auto-renewal option or facility.
Premature Withdrawals are Not Allowed
Regular fixed deposits offer loan facilities you can avail off against deposits. However, tax-saving FDs don't offer loan facilities, overdrafts (OD), or premature withdrawals.
Fixed Interest Payout
You can receive interest under a tax-saving FD whenever you want. You can opt for a quarterly or monthly payout or reinvest the interest in the principal amount.
Senior citizens can save tax by opening Tax Saving FDs by March 31, 2023, for FY22-23.
DCB Bank offers an 8.1% interest rate on tax-saving FDs. YES Bank, IndusInd Bank, and Axis Bank offer a 7.75% interest. Other banks like RBL Bank, ICICI Bank, and HDFC Bank offer 7% interest in tax-saving FDs.