TAX DEDUCTION ON FDs

Tax saver FDs are a type of deposit plan in which an investor can get tax deduction under Section 80C of the Income Tax Act, 1961. Any investor who opts for tax saver FDs can claim a tax deduction of up to Rs 1,50,000 in a financial year.

Moreover, depositors can add nominations or nominees who in case of any unfortunate event will be entitled to have the deposit sum along with the benefits before or post maturity.

The Lock-in tenure of these deposits is 5 years. And the tax-saving FD interest rates range from 5.00% – 7.75% per annum.

Nevertheless, the interest earned from these FDs is taxable. If one has not thought about any tax-saving investments yet and needs a secure and flexible bet for saving tax then a tax-saving FD is an ideal choice.

These Fixed Deposits can be availed through any public or private sector banks and in post office branches as well. Let’s have a look at the important features of tax saver FDs. 

ELIGIBILITY

The eligibility criteria for investment in tax saver FDs is as follows:

• Individuals who are resident of India,
• Members of HUF (Hindu Undivided Family)

It is important to note that all the above-mentioned investors should have a PAN CARD for investing in the tax saver FDs. If an investor doesn’t have a PAN CARD then he first needs to apply for it and only then you can invest in these.

FEATURES

1. Minimum Deposits:

Tax saving FDs can be opened with a minimum deposit sum which differs from bank to bank. The maximum amount is fixed at Rs. 1,50,000 in an FY which is also the cap for claiming tax deductions under Section 80C of the Income Tax Act, 1961.

2. Tax saving FD Eligibility:

Only HUFs and individuals are eligible to invest in tax saving FD plans. However, a minor can also invest but in a joint holding with an adult.

3. Loan Facility

Loans against tax-saving Fds are not allowed.

4. Premature Withdrawal:

Premature withdrawals are not allowed in tax-saving FDs. 

5. Lock-in Tenure:

The lock-in tenure for these deposits is 5 years.

6. Post Office TD

Investment in Post Office TD with tenure of 5 years is also eligible for deductions under Section 80C of the Income Tax Act, 1961. Post Office FDs are transferable from one branch to another. These FDs can be initiated either in an individual or joint capacity. If the account is joint, the tax benefit will only be available to the primary holder of the account.

7. Where to invest?

Investment in these plans can be done through any private or public sector bank except for rural and co-operative banks. Also, tax saving deposits can be made with the post office.

8. Tax Deductible at Source:

The interest income earned on the deposit is subject to TDS (Tax Deductible at Source). The interest on these deposits is paid out on a monthly, quarterly basis or can be reinvested as per the option chosen by the depositor. The TDS can be avoided by submitting Form 15G/15H to the bank.

For individuals, TDS is applicable if the total interest earned is more than Rs 40,000 in a financial year. The rate for TDS is 20% if the individual fails to submit the PAN proof in the branch. Otherwise, TDS will be deducted at the rate of 10%.

9. Nomination:

A nomination facility is offered by these FDs. However, a nomination facility doesn’t exist in case the deposit is applied for and held on behalf of or by a minor.

10. Senior Citizen Interest Rates:

Most of the commercial banks offer a bit higher interest rate on FDs to senior citizens. This difference in interest rates exists for tax saving FDs too. However, in the case of the post office, they do not offer higher tax saving FD returns to senior citizens.

BENEFITS

Among various investment alternatives providing tax benefits, tax-saving FDs are considered quite secure and safe. Therefore, it is a preferred choice for investors having a low-risk appetite. The benefits one can avail with tax-saving FDs are:

• As per Section 80C of the Income Tax Act, contributions made in such FD schemes qualify for tax deductions.
• A maximum of Rs. 1,50,000 can be claimed as deductions in a financial year
• Such plans come with a lock-in tenure of 5 years and this period can be extended on the request by the depositor.
• Investors get guaranteed returns as well as there is an insurance coverage by DICGC of up to Rs. 5,00,000 in insured bank FDs, in case of any default by the banks.

DOCUMENTS REQUIRED

Address proof and Identity is required to initiate a tax-saving FD in post offices or banks. An investor can provide them with any of the following documents from identity and address proof:

Identity Proof

• Aadhaar Card
• Passport
• PAN card
• Voter ID card
• Driving license
• Government ID card
• Senior citizen ID card

Address Proof

• Aadhaar Card
• Passport
• Telephone bill
• Electricity bill
• Bank Statement with Cheque
• Certificate/ ID card issued by Post office

Points to note while submitting the documents

• One can submit the proof of any of the above-mentioned identity or address proof documents; subject to the bank’s terms and conditions.
• An investor must provide the original document(s) for verification & a photocopy of each document.
• The form must be duly filled in CAPITAL LETTERS only.
• Please countersign in case of any overwriting
• Please avail of the nomination/beneficiary facility.
• A permanent address and contact number are compulsory to provide.