Tax Saver FD

Tax-saver FDs are a type of fixed deposit scheme that help you save taxes. These fixed deposit schemes have a tenure of five years and allow you to claim a tax deduction on the amount you invested under section 80C. You can claim a deduction of up to Rs.1.5 lakhs under section 80C of the Income Tax Act, 1961, when you invest in tax saving FD accounts.

While the tenure is fixed for five years, there is no cap on the amount you wish to invest. The tax deduction, however, is only up to Rs.1.5 lakhs. It should be noted that this tax-benefit is only applicable to the invested amount and not the interest income, which remains taxable.

Further, the tax-saving FD interest rates are usually in the range of 5.5 – 7.75%.

The salient features of tax-saving FDs are as follows –

• The money that you deposit remains invested for five years with no option for premature withdrawal.
• The rate of interest, once fixed, does not change during the deposit tenure
• If you are a senior citizen, you can enjoy higher interest rates.
• Tax Saving FDs do not have an automatic renewal option.
• TDS (10%) would be applicable if the aggregate interest income exceeds Rs.40,000. However, if your taxable income falls below Rs.2.5 lakhs, you can claim an exemption from TDS by submitting Form 15G/15H
• For senior citizens, interest income up to Rs.50,000 would be tax-free under section 80TTB.
• You cannot avail of a loan against the mortgage of these fixed deposits
• You can open the fixed deposit account jointly. However, the tax benefit would be available only to the first holder.
• You can open a tax-saving FD account in the majority of public and private sector banks, including Post Offices.

The 5 year tax saving fixed deposit schemes have multiple benefits over other schemes and investments. These benefits are:

• Tax benefit
  The primary benefit of a tax saver FD scheme is its tax advantage. You can claim a deduction up to Rs.1.5 lakhs on your deposit amount to reduce your taxable income. If you fall in the 30% tax bracket, you save Rs.45,000 in taxes.
• Guaranteed returns
  Fixed deposit schemes offer guaranteed returns on your investment. Once fixed, the tax-saving FD interest rates do not change, allowing you to enjoy safe returns every year. Moreover, the returns compound every time they are declared, giving you higher returns in subsequent years, so you amass a decent corpus.
• Safe investment avenues
  Tax-saving fixed deposits are not linked to market-securities, so they offer safety against volatility. Even if the market falls or suffers a crash, tax saving fixed deposit rates remain secured and fixed.
  Moreover, with bank deposits, you also enjoy an insurance cover up to Rs.5 lakhs. This means that deposits up to Rs.5 lakhs are secured even if the bank ceases operations.
• Additional benefits for senior citizens
  Senior citizens get to enjoy additional benefits with 5-year tax-saving fixed deposit schemes. For starters, tax-saving fixed deposit interest rates are higher for senior citizens. Secondly, they enjoy tax-free returns up to Rs.50,000, giving them dual tax benefits during investment and redemption.
• Affordable and simple investments
  Tax-saver FDs are an affordable option that can start with an investment as low as Rs.1000. However, the minimum investment amount is different in each bank. Moreover, with online investment facility offered by most institutions, you can open an account quickly and conveniently.
• Helps plan for your financial goals
  With the guaranteed corpus that the saving fixed deposit promises, you can plan ahead for your mid to long-term financial goals.

Individuals, senior citizens and Hindu Undivided Families (HUFs) can open a tax-saving FD account. You must submit a set of documents for the financial institution to authenticate and verify your identity and carry out the KYC compliance norms.

The documents required include the following –

Valid identity proof

• Aadhaar Card
• Driving Licence
• Passport
• PAN Card
• Voter ID Card
• Any other ID card containing your photo and issued by a recognised institution
   

Valid address proof

• Aadhaar Card
• Driving License
• Passport
• Voter ID Card
• Property Deed
• Rent agreement
• Latest utility bills
• Bank statement
  You should self-attest the copies of your identity and address proof. The financial institution may ask to see the original documents too.

While you might find the tax-saving FD to be the right investment avenue for your savings, here are a few things that you should know when you invest –

• Minors can open a tax-saving FD account jointly with an adult. The adult would be the primary account holder eligible to claim tax deductions.
• The minimum amount required for the deposit varies across banks and post offices. Some banks might even allow a minimum investment of Rs.1000. Find out the minimum investment required when you decide to invest in these FDs
• There is no maximum limit on investments. However, the tax benefit is available only on a maximum investment of Rs.1.5 lakhs. If you invest a higher amount, the excess would be considered a part of your taxable income and will be taxed at your tax-slab rate.
• You cannot make partial withdrawals from your deposit during the lock-in period of five years.
• You should nominate a family member to receive the maturity amount in the case of your sudden demise.
• If your interest income is exceeding Rs.40,000, it is eligible for taxation. However, if your annual taxable income is below Rs.2.5 lakhs, submit Form 15G or 15H to the bank or post office to claim TDS exemption.

If you are looking for a fixed-income investment avenue offering tax benefits, you can go for a five-year fixed deposit scheme. You can avail the dual benefit of creating a secured corpus while enjoying tax relief. Compare the deposits by different banks to get the highest interest rate on your investments. Plan your mid to long-term financial goals with the promise of guaranteed returns.