Looking to Invest in Tax-Saving FD? Here’s All You Need to Know

As the name suggests, the tax-saving fixed deposits help you to save tax by up to Rs 1.5 lakh under section 80C of the Income Tax Act. 

To investors, it provides the dual benefit of tax saving, as well as, assured returns. Compared to other categories of tax-saving instruments, tax-saving FD is the safest saving plan, with zero risks

Points To Know Before Investing in Tax-saving FD 

Below are the important points you need to know about tax saving FD.

  1. Who can invest?

Any individual and Hindu Undivided Families (HUF) can subscribe to a tax-saving fixed deposit plan. 

  1. Is there any lock-in period?

Yes, tax-saving fixed deposits have a lock-in period of 5 years, and no premature withdrawal is allowed.

  1. What are the minimum and maximum investment amounts?

The minimum investment amount varies among banks and financial institutions. Generally, the minimum deposit amount in the scheme is Rs 1,000, and the maximum deposit amount is Rs 1,50,000 in a financial year.

  1. What is the rate of return on deposit?

The interest rate offered on tax-saving FD is similar to that of a normal fixed deposit with 5 years tenure. To know the current FD interest rates, you can visit the official website of the respected bank or financial institution.

Senior citizens are offered additional FD rates on the deposit as per the terms of the bank.

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  1. How is interest paid out?

It has a flexible interest payout schedule with monthly, quarterly, semi-annually or at maturity. The depositor needs to let their choice known to the bank or financial institution at the time of opening the deposit account.

  1. Is interest income tax-free?

No, the interest income is not tax-free and is added to the gross total income of the depositor and taxed as per the depositor’s tax bracket. 

The interest income is subject to TDS, where 10% of the interest income is deducted. One can avoid TDS on interest income by submitting Form 15G (15H for senior citizens). For resident individuals, interest income of up to Rs 10,000 and Rs 50,000 for senior citizens is exempt from tax.

In case of joint holding, the tax liability will apply only to the first holder.

  1. Can the tax-saving FD scheme be extended at maturity?

No, it is a one-time lump sum deposit, and no auto-renewal facility is available. The maturity proceeds ( principal and interest) will be credited to the depositor’s account from which the deposit was funded.

  1. Can I avail a loan against my tax-saving FD certificate?

No, you cannot raise any loan against the tax-saving fixed deposit certificate.

  1. Is the nomination facility available?

Yes, the nomination facility is available and can add a nominee at the time of opening the FD scheme or update it anytime during the tenure of the FD.

In case of death of the depositor, the account will be closed prematurely, and the fund will be deposited to the beneficiary account. 

Conclusion

Tax saving fixed deposit is a great tax saving cum investing option for those who don’t understand or comfortable to invest in complex and riskier tax-saving plans. Investing in tax-saving FD ensures simplicity in its portfolio.

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