India’s population saves a lot of money. Even if it means taking a chance on modest earnings, we would rather have our investment amount than safety and security. For hundreds of years, Fixed Deposits have been the ideal option for Indians because of this. We still choose FDs even if mutual funds and other equity investments are beneficial for long-term objectives.
The same reasoning applies to tax savings as well. ELSS Mutual Funds are available, although many buyers choose Section 80C tax-saving FDs instead. Keep reading to learn more about tax-saving fixed deposits, including how they may help you save money and what the best tax-saving fixed deposit rates are.
What Are Tax-Saving F-Ds?
Fixed deposits that qualify for a tax deduction under Section 80C of the Indian Income Tax, 1961 are known as “tax saving FDs.” Single-holder-type deposits and joint-holder-type deposits are the two types of accounts through which these deposits can be made.
If you choose a joint method of holding, only the first holder is eligible for the tax advantage. The tax-saving fixed deposit has a 5-year maturity period. Both individuals and the Hindu Undivided Family (HUF) are eligible for a deduction under section 80C.
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How Does a Tax-Saving Fd Work?
Here is a brief explanation of how a tax-saving FD functions:
- It is a financial service provided by banks and NBFCs that entails the lump sum deposit of funds for a predetermined time frame.
- A tax-saving fixed deposit has a five-year term.
- It offers a tax deduction under Section 80C of the Income Tax Act, of 1961.
- Because there is a lock-in period, you cannot remove money from it too soon.
- Deposit interest is subject to taxation.
- The maturity amount of a tax-saving FD is credited to the savings account linked to the FD at the moment of maturity.
The Advantages of A Tax-Saving Fd
A tax-saving FD is a secure investment choice that offers a wide range of advantages. Here are some of the main advantages offered by this program: –
1. High Returns
Compared to savings accounts, a tax-saving fixed deposit provides a larger potential for interest income.
2. Lump Sum Deposit
You can make a one-time lump sum deposit into a tax-saving FD. If you have a substantial surplus of savings, it is a useful function.
3. Minimum Lock-in Period
Five years must pass before collecting tax advantages. It can, however, be prolonged for a longer period of time.
4. Secure
A tax-saving FD is 100 percent safe. In contrast to Mutual Funds and other market-related investment alternatives, interest rates are not impacted by market movements. The interest rates on tax-saving FDs also don’t change until they mature.
5. Flexible Deposit Amount
FDs allow for deposit amounts to be adjusted based on the investor’s convenience.
6. Tax Benefits
Under Section 80C of the Income Tax Act of 1961, you are eligible for income tax deductions up to Rs. 1,50,000 every year.
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Who Can Invest in A Tax Saving Fd?
The following organizations are eligible to invest in a tax-saving FD: –
- Hindu Undivided Families (HUFs) and individuals both have the option to invest in tax-saving FDs.
- Except for cooperative and rural banks, you can invest in a tax-saving FD through any public or private bank.
- ‘Single’ or ‘Joint’ tax-saving FDs can be held by one person. Only the first holder is eligible for tax benefits in a “Joint” arrangement.
- A time deposit held for five years at the post office is considered a tax-saving FD.
Documents Required | Tax Saving FD
The following documents are needed to open a tax-saving fixed deposit: –
With a tax-saving FD, you can make a one-time lump sum deposit. It is a convenient feature if you have sizable surplus savings
- Government-recognized ID proof:
- Aadhaar Card
- Driving License
- Passport
- Ration Card
- Voter ID Card
- Government-recognized address proof
- Proof of age (for senior citizens)
- 2 recent color passport-size photographs
Taxation on Fd Earnings
Read on to learn about the taxation rules for fixed deposit funds if you want to reduce your tax liability. With a simple fixed deposit, you can choose the five-year tax-saving FD and take advantage of section 80c of the income tax act exemptions.
However, when we concentrate on the Tax Saving FD, the main benefit it provides is that it is not market-linked. The minimum investment needed for the Equity Linked Savings Scheme (ELSS), which has a lock-in period of three years, is Rs 500. Additionally, because ELSS is market-linked, it carries some risk.
A Tax Saving Fixed Deposit requires a minimum deposit of Rs 100. The minimum investment required for a PPF Account is Rs 500, however, you can start one with an initial balance of Rs 100. Additionally, a PPF has a 15-year lock-in term.