Fixed deposit schemes falling under the ambit of the much-popular Section 80C of the Income Tax Act, 1961 are commonly known as tax saving fixed deposits. These accounts are offered by most of the major banks and financial companies. Tax saving fixed deposits are at par with other tax saving investment instruments such as Public Provident Funds (PPF), pension plans and National Savings Certificate (NSC), among others. Tax saver FD are a simple instrument to get deductions up to Rs.1.5 lakhs per year.
The Section 80C of the Income Tax Act offers deductions up to Rs.1.5 lakhs per year to all tax-paying individuals irrespective of their tax bracket. As such, this is a very popular deduction scheme that is used by most of the tax-paying citizens. Section 80C can be used to receive deductions on a number of investments or expenditures such as PPF, NSC, child education fees, infrastructure bonds, pension funds, tax saver fixed deposits, senior citizen savings scheme (SCSS), unit linked insurance plans (ULIP), life insurance premiums, home loan principal and so on. A point to note here is that Section 80C provides cumulative deductions up to Rs.1.5 lakhs per year from all investments in relevant instruments.
Features of tax saving fixed deposits
Tax saving FDs falling under the ambit of Section 80C are packed with features that can help you get more out of your investments. However, there are a few limitations here such as no premature withdrawal and no option to pledge the amount for loans etc. Major features of this type of account are:
- Fixed maturity of 5 years.
- Minimum investment must be Rs.100. Further investments can be made in multiples of Rs.100 only.
- The maximum limit of investments in capped at Rs.1.5 lakhs, which has been revised from Rs.1 lakh previously.
- Interest rate will be same as the one quoted to you by the bank or financial institution.
- Individuals and Hindu Unified Families (HUF) can open this account.
- In case of joint accounts, only the first holder will get tax deductions.
- Premature withdrawal is not allowed.
- Loans cannot be availed against tax saver fixed deposit accounts.
- TDS is deducted on income earned through interests from this account. TDS is charged at 10% p.a. of interests if the account holder has submitted his/her PAN details, else TDS will be charged at 20% p.a.
Benefits of tax saving fixed deposit schemes
Tax saver fixed deposits come with a lot of benefits. Major avenues where you could benefit from tax saving fixed deposits are:
- Open throughout the year unlike tax free bonds issued by the government which are offered from time to time.
- Tax deductions on amount invested up to Rs.1.5 lakhs per year.
- Interests paid out on monthly or quarterly basis.
- Special rates for senior citizens as per the provider.
- Secure investments for the medium term.