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Central Bank of India Tax Saving Fixed Deposit

Updated 04 Sep 2023

The financial landscape offers myriad ways for savvy savers to grow their wealth, and Fixed Deposits (FDs) are a time-honoured favourite. With the dual advantages of safety and steady growth, FDs have always been a go-to for investors of every stripe. But what if there was a way not just to save but also to reduce your taxable income? Enter the Tax Saving FDs by the Central Bank of India.

 

Offering attractive interest rates coupled with the benefit of tax deduction, these FDs are a potent blend of savings and smart tax planning. Dive in to understand how they can elevate your financial game.

Features of the Tax-saving FDs

The interest earned on all types of FDs is included in the total income and is taxable per the prevailing slab rate. 

  • As per section 80C of the Income-tax Act 1961, the investor gets an exemption of ₹1,50,000 in tax saver FD investment.
  • For a senior citizen (Aged above 60 years), a deduction of up to ₹50,000 is available; for non-senior citizens, up to ₹40,000.
  • If the PAN is not provided, then, in that case, 20% TDS is levied.
  • In case your total income is below the taxable limit, i.e. Rs. 2.5 lakhs, you can avoid TDS by submitting Form 15G to the bank.
  • For senior citizens, if your total income is below the taxable limit, you can avoid TDS by submitting Form 15H to the bank.

Now let’s take a look at the features a little bit in-depth:

  • Duration: Tax Saving FDs usually come with a 5-year lock-in period, prohibiting any withdrawals during this time.
  • Interest Offerings: Competitive interest rates are a highlight, and institutions like Federal Bank often provide an additional rate increment for senior citizens.
  • Borrowing against FD: Given their fixed tenure, these FDs typically can't be used as loan collateral.
  • Interest Disbursement: Different payout options, such as monthly, quarterly, or annual intervals, might be available. Some banks also provide reinvestment of the earned interest.
  • Renewal Policy: Unless instructed otherwise, these FDs can be automatically renewed upon maturity for an equivalent period at the current interest rate.
  • Early Withdrawal Charges: Withdrawals before the end of the lock-in period aren't permissible. Withdrawing after the lock-in but before FD maturity might invite penalties.
  • Investment Limits: While there's a minimum deposit requirement to start a tax-saving FD, the upper limit typically remains INR 1.5 lakh annually, aligning with the 80C guidelines.
  • Tax Deduction at Source (TDS): TDS might be deducted if the interest income surpasses a specified limit.

Eligibility Criteria for Opening a Tax-Saver FD

  • Resident Individuals: Any individual who is a resident of India can open a Tax-saving FD with Central Bank of India.
  • Hindu Undivided Families (HUF): The Karta of the HUF can open a Tax-saving FD on behalf of the family.
  • Minors: Minors can open an FD through a guardian.
  • Single or Joint Accounts: Both single and joint accounts can be opened. However, the tax benefit under section 80C is usually available only to the first account holder for joint accounts.
  • Existing Central Bank of India Customers: Existing customers may find it easier to open a Tax-saving FD, especially online, given that their KYC details are already available with the bank. New customers might need to go through the full KYC process.
  • Amount: The minimum amount for investment typically starts from a small amount (e.g., ₹100) but can go up to a maximum of ₹1.5 lakhs in a financial year to avail the 80C benefit.

Documents Required for Central Bank of India FD account

If you are not a prior customer or account holder in the Central Bank of India, here are some documents you must submit.

For Identity Proof and Signature Proof

  • PAN Card
  • Driving License
  • Passport
  • Voter’s ID
  • Aadhar Card

For Address proof

  • PAN Card
  • Driving License
  • Passport
  • Voter’s ID
  • Aadhar Card
  • Utility Bill
  • Bank account Passbook (Updated and should not be more than 3 months old)

FAQs

What is the maximum and minimum amount I can deposit in a Tax-saving FD?

Typically, you can start with a minimum amount, such as ₹100. The maximum amount that qualifies for a deduction under Section 80C is ₹1.5 lakhs in a financial year.

Do senior citizens get an extra interest rate on Tax-saving FDs?

Senior citizens are generally offered a higher interest rate than regular deposit rates.

Is the interest earned on Tax-saving FDs tax-free?

No, the interest earned on Tax-saving FDs is taxable. Only the principal amount you deposit is eligible for a tax deduction under Section 80C.

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Disclaimer: Wint Wealth makes no guarantee or warranty on the accuracy of the data provided on this site, the information displayed is subject to change and are provided on an as-is basis. Nothing contained herein is intended to or shall be deemed to be investment advice, implied or otherwise. You are advised to make your own enquiries, consult a professional advisor and verify the information prior to taking any investment decisions. We accept no liability for any loss arising from the use of information contained on this website.

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