Home Finance / Investment A Quick Guide to Tax-Saving FD!

A Quick Guide to Tax-Saving FD!


Whenever we think of investing our hard earned money, fixed deposits turn out to be one of the safest and reliable options. Now you can even do tax savings in a fixed deposit plan. Under the tax saving schemes of section 80C of the income tax, and an individual can invest up to INR 1.5 lakh in a financial year and claim a tax deduction on the amount invested. The 5-year tax saving fixed deposit is one of the products where an individual can spend the money for the given lock-in period and get assured returns.

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What is Fixed Deposit?

A fixed deposit is a powerful financial tool and a form of flexible investment. A fixed deposit is populated among the general public and the most common and widely used type of saving. Fixed Deposits are purely bank based schemed and are devised and monitored by RBI itself. Fixed Deposits ensure a reasonable rate of return. Fd is the safest and less risky form of investment. At the end of the tenure, you can enjoy your total sum along with your returns.

What a tax-saving fixed deposit has to offer

Principal Amount: The tax-saving fixed deposit scheme can be opened in any financial institution with a maximum principal amount is INR 1.5 Lakh. The minimum amount might vary from bank to bank, but typically it is INR 100. The tax saving FD scheme is also transferable from one bank’s branch to another.

Tenure: This fixed deposit comes with a lock-in period of 5years. There are no premature withdrawals, overdraft facilities and loans are available against this tax-saving FDs.

Interest rate: The interest rate of a tax-savings fixed deposit scheme varies in different financial institutions, and it is 5.5% – 7.75%. The interest rates are higher for senior citizens and bank staff. The amount invested qualifies for a tax deduction, even though the interest rates are taxable, deducted, and later on added to your income. The bank will also deduct TDS at 10% if the interest across all deposits and branches exceeds the limit of INR 10,000 in a financial year. A 20% TDS will be deducted in case an individual has not submitted his PAN details.

Account holder: This fixed deposit scheme can be operated by a single or joint mode of holding. When the way of holding is collective, the tax benefits are only available to the first holder. There is also provision for a nominee in these deposit schemes. This FD scheme can be opened to any residents of India, which also includes senior citizens. Additionally, a Non-Resident Indian (NRI) can also avail benefits from this scheme. Besides, another group called HUF, which symbolizes the Hindu Undivided Family can open this FD scheme. Here a group of Hindu communities can come in a family unit and pool all their resources to form HUF. Other religions like Buddhist, Jain, and Sikh can create a HUF. HUF has its independent PAN and can file its tax returns.

Maturity: As mentioned earlier, this tax-saving fixed deposit scheme comes with a lock-in period of five years, which means you can not withdraw the amount before the period. This scheme is entirely free from market risks. The amount invested is protected, and the returns are guaranteed. After the maturity period, and FD holder redeems all the money with interest in his bank account and becomes eligible for the withdrawal.

Benefits of having Tax-Saving Fixed Deposits

  • Earn a higher rate of Interest than standard rate than a regular savings account
  • The hassle-free process with one time deposit
  • TDS on Interest is applied. This makes it a transparent form of investment.
  • Investors have ease with flexible tenure of the investment
  • According to Section 80C, get tax deduction upto Rs1,50,000

Some of the points and perks about FD’S

  • Various Senior Citizen FD Schemes are available that offer good returns and tax redemption
  • A person can open an fd from both private as well as Public Bank
  • Nomination facility is made available on an fd
  • Must note that people with Huf’s ( Hindu Undivided Families) can only invest in tax saving FD Scheme.
  • One a hold fd in the form of single or joint form.

Note: Please avoid a common Myth

Many people hold the misconception that they can avoid tax if they invest in the name of their non-working spouse or minor child. You can avoid tax in case of a bank fixed deposits by processing with the above-stated action. The interest income will be added to your income and taxed as per your slab.

Apart from this tax-saving fixed deposit scheme, there are other options where you can invest your money in NSC, PPF, and ELSS tax saving Mutual Funds. A fixed deposit is a financial instrument that has experienced the certitude of the Indian mass. It being a bank-based investment is closely monitored by the guidelines of RBI, and investors are assured of the funds invested, making it almost risk-free.

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Shelly Lane is a dedicated blogger. She love's to explore new things and share that on her blogs. She joined this platform to increase the reach & interaction with the users on this platform. Moreover, she has written 100+ blogs on various platforms related to various topics and categories. Follow on Twitter to them.


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