A tax saving deposit is a good way to save tax under Section 80C of the Income Tax Act, 1961. You can claim a tax deduction of Rs. 1.5 lakh on your FD investment. The booking period for tax-saving fixed deposits is minimum 5 years and maximum 10 years. No partial or pre-mature withdrawal is allowed.
Also, as an investor, you can choose anyone as your nominee to withdraw money from the FD account after the maturity of the FD or before your death. However, a tax-saving FD is similar to other bank fixed deposits, as the maturity amount (Principal + FD interest) is credited directly to your bank account.
Many banks like ICICI Bank, IDBI Bank, SBI Bank, HDFC Bank and Axis Bank offer higher interest rates on Tax Saving Deposit Scheme.
Benefits of Tax Saving Fixed Deposits
Among the various investment instruments that offer tax benefits, tax-saving fixed deposits are considered the safest. Thus, it is the preferred option for risk-averse investors. Following are the benefits of a tax-saving FD:
As per Section 80C of the Income Tax Act, 1961, the interest earned in such FD schemes is eligible for a tax deduction of Rs 1.5 lakh in a financial year.
Such plans come with a lock-in period of 5 years and the tenure can be extended up to 10 years
In case of any default on the part of the bank, investors will get assured returns of Rs 1 lakh along with Insurance.
Interest Rates of Tax Saving Fixed Deposits
Despite the recent cut in fixed deposit interest rates, FDs are still at the top when it comes to tax-saving investments. Investing in a simple and safe fixed deposit scheme can help you save tax on your annual income. Banks offer different interest rates for regular depositors, including individuals, senior citizens, NREs and bank employees. The interest rates vary depending on the different categories of applicants.
Let's take a look at the interest rates offered by some banks on Tax Saving Fixed Deposits:
Dutch Bank Tax Saving FD
Deutsche Bank offers a higher interest rate of 6.25% on tax-saving FDs for general citizens as well as senior citizens. The minimum investment amount in this is Rs 20,000 and the maximum amount is Rs 1.5 lakh. which a person can invest in a financial year. No loan is allowed against this FD scheme.
IDFC First Bank Tax Saving FD
IDFC First Bank Tax Saving FD offers an interest rate of 6.75% for regular citizens and 7.25% for senior citizens. 10,000 for an investor to open a tax saving FD account. Have to deposit.
Yes Bank Tax Saving FD
The tax-saving FD interest rate for Yes Bank is 6.75% for regular citizens while 7.25% for senior citizens. Interest on deposits is paid either monthly or quarterly.
IndusInd Bank Tax Saving FD
IndusInd Tax Saving FD helps depositors to save tax and earn more through their investments. IndusInd Bank offers an interest rate of 6.75% for general citizens and 7.25% for senior citizens on this scheme. The depositor can invest up to a Rs 1.5 lakh under the Tax Saving FD Scheme.
Axis Bank Tax Saving FD
Axis Bank offers two types of Tax Saving Fixed Deposits – one is to receive interest every quarter (in three months) and add it to your principal investment amount, also known as Compound/Re-investment, and secondly by Investor’s Savings Bank. Interest is paid in the account every quarter. The lock-in period of this fixed deposit scheme is 5 years. Axis Bank offers an interest rate of 6.50% per annum for regular depositors and 7.00% for senior citizens.
ICICI Bank Tax Saving FD
ICICI Bank offers two types of tax-saving FD schemes – the first is the 'Traditional Plan' which pays interest on a monthly or quarterly basis and the second is the 'Re-investment Plan', which pays compound interest and reinvested with the principal amount. Minimum investment Rs 10,000 and maximum 1.5 lakh is allowed in Tax saving FD. ICICI Bank offers 5.50% interest on tax-saving fixed deposits for general/individual investors and 6.00% for senior citizens.
HDFC Bank Tax Saving FD
HDFC Bank also offers Tax Saving Fixed Deposit Scheme with a lock-in period of 5 years on a monthly or quarterly payment basis. The bank pays 5.35% interest per annum to regular depositors and 5.85 % to senior citizens. Depositor minimum Rs 100 and maximum Rs 1.5 lakh can be invested and deposit must be in multiple.
SBI Tax Saving FD
State Bank of India offers Tax Saving Fixed Deposit with a lock-in period of 5 years. The investor earns Rs 1.5 lakh every year. and claim profit under section 80C of the Income Tax Act, 1961. SBI Tax Saving Scheme, as of the year 2006, offers an interest rate of 5.40% for general depositors and 6.20% for senior citizens on tax-saving fixed deposits. The minimum deposit amount is Rs.1,000 and the maximum limit is Rs.1.5 lakh. An amount can be deposited in multiples of 1000. Depositors can open Fixed Deposit in SBI online by logging into SBI's net banking account.
IDBI Bank Tax Saving FD
IDBI Bank offers Suvidha Tax Saving Fixed Deposit Scheme, in which the investor can invest up to Rs.1.5 lakh. One can invest for 5 years and get a lump sum amount as savings on maturity. The bank offers 5.50% interest per annum for regular depositors and 6.10% per annum for senior citizens.
Kotak Mahindra Bank Tax Saving FD
Kotak Mahindra Bank also offers a tax-saving fixed deposit option through the depositors not only earn good interest but also save income tax. The bank offers 4.50% interest rate on tax-saving FDs for general citizens and 5.00% for senior citizens. The minimum investment in this is Rs 100 and the depositor can pay a maximum amount of Rs 1.5 lakh in a financial year.
Tax Deductible on Fixed Deposits
As mentioned above, an individual can claim a tax deduction for tax-saving fixed deposits of up to Rs 1.5 lakh according to present tax laws. This amount is deducted from a person's total gross income and the rest is your taxable income. This deduction is mentioned and permitted under Section 80C of the Income Tax Act. Here are some conditions to be fulfilled to claim this deduction:
- Only Hindu United Families (HUF) or individuals are allowed to invest in tax-saving fixed deposit schemes.
- The bank can stipulate the minimum amount for Fixed deposit.
- The tax-saving fixed deposits have a 5-year lock-in period and do not allow premature withdrawals and loans against the Fixed Deposit.
- A person can invest in these Fixed Deposits through any private or public sector banks, but not through co-operative and rural banks.
- The Post Office Time Deposit of 5 years is also eligible for deductions under Section 80C of the Income Tax Act of 1961.
- Post Office Fixed Deposits can be transferred between post offices.
- Fixed Deposits can be an individual FD or a joint FD. In case of a joint FD, only first holder of the Fixed Deposit will get tax benefits.
- Interest earned on these Fixed Deposits is taxable according to the investor’s tax slab and therefore, TDS is applicable. The interest earned on the investment can be either monthly or quarterly which may be reinvested.
- Tax Saving Fixed Deposits have a nomination facility.
- Banks offer slightly higher interest rates to senior citizens on Tax Saving Fixed Deposits.
How to Avoid TDS on FDs?
Tax Deducted at Source (TDS) applies to all the interest income earned in India, including FDs. If the interest income for a financial year exceeds Rs 10,000, the account holder will have to pay tax at any cost. However, if the interest income for a particular financial year do not exceed Rs 10,000, then the account holder will not have to pay tax.
Self-declaration
If the interest earned from FDs and the total taxable income earned in the financial year do not exceed the prescribed taxable limit, then you must submit the form 15G or 15H, whichever is applicable.
Form 15G or 15H
Form 15G is for general public and Form 15H is for senior citizens. The applicant must be a citizen of India and his/her income should not be more than the prescribed tax limit. Form 15H is only for an Indian resident whose age is above 60 years and who falls under the prescribed tax limit.
Managing investments better
You should try to make your investments in such a way that it does not exceed Rs 10,000 in a financial year. For example, you can invest in a Fixed Deposit for 1 year in October, in such a manner that the financial year can be split into two. As the financial year ends on 31st March, you can save TDS on the amount invested.
The second applicant waived off TDS
If you have a joint FD and you are a first holder in your joint FD, then TDS will be automatically deducted from your account in case your interest income exceeds the limit. But if you are the second holder in your joint FD, TDS won't be deducted.
Distributing investments
Another option that investors have is that they can distribute their investments across various banks, instead of keeping it all in one bank.
PAN
You will have to provide your PAN details to the bank for your FD investment. In case you don’t provide your PAN details, banks will deduct TDS at a rate of 20% (expected).
Late submission
If you are late to submit the self-declaration forms and the TDS is already deducted, the Income Tax department will make a refund, if you file for tax returns. However, you will have to wait until the next July and the refund will take another few months for processing.
FDs are still one of the most preferred investment options in India because they offer certain guaranteed returns with zero financial risk elements. It is very important to do tax planning and better to manage your investments which saves you from paying hefty taxes. Other than the above mentioned methods one can claim tax exemption which will help that person reduce the tax burden to a certain extent.
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