Tax Saving Fixed Deposit: Things to Know About Tax-saving FD

Investing in Tax Saving Fixed Deposits( FDs) gives you a fixed return while investments made up to Rs 1.5 lakh can be deducted from your taxable income in a financial year as per Section 80 C of the IT Act. So here are some key points you need to remember before you start investing in tax saving tax-saving FDs:

1. The i nvestor can be an individual or a HUF (Hindu Undivided Family) and above all should be an Indian resident . A minor can also open an account provided it is done jointly with an eligible adult.
2. You can hold an FD either in "Single" or in "Joint" mode; however, only the first holder is eligible for tax exemption.
3. Tax-saving FDs have a mandatory lock-in period of 5 years . This means under no circumstances (unless the investor expires) can the deposit be redeemed.
4. While the investment amount is exempted from taxes, the interest earned from the investment is taxable. Banks are responsible for deducting TDS if the interest accrued is more than Rs 40,000 in a year.
5. The maximum amount which you can invest under tax-saving fixed deposits is Rs 1.5 lakhs. The minimum amount depends on the bank. Private banks usually have a higher limit of the minimum deposit than government banks.
6. You can invest in these FDs through any private or government banks of India, barring co-operative and rural banks.
7. Nomination facility is available for these FDs except if the FD is applied for and held by or on behalf of a minor.
8. Investments in Post Office Time Deposit also qualifies as a tax-saving fixed deposit.
9. Fixed Deposits in Post Offices can be transferred to other Post Offices across India.
10. Senior Citizens enjoy a slightly higher interest rate compared to other citizens. Moreover, senior citizens can claim tax deductions of up to Rs 50,000 for the interest earned in a year as per Section 80TTB.

Upon maturity of the fixed deposit, the investor can claim the principal amount along with interest received minus TDS in the bank account linked to the fixed deposit. Make sure you go through the clauses and terms thoroughly before investing and also, make sure you're financially stable to keep up with your expenses during the 5-year lock-in period and have a back-up in case of an unforeseen expenditure.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.