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  • Fixed Deposits and Income Tax is Rated as "Blown Away!" by 6 Users

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    Fixed Deposits and Income Tax

    A fixed deposit is an investment option that is widely used by Indians and has proven to be a secure haven for hard earned funds. India has a variety of fixed deposit schemes across banks and companies alike. Lock in Fixed Deposit accounts are high income gaining with higher rates of interest. Reserve Bank of India (RBI) has granted banks freedom to offer better privileges to depositors opting for lock in fixed deposits.

    Opening a fixed deposit account can be broadly compared to lending a bank money, upon which it pays the depositor interest at a pre decided rate.

    Income Tax is a tax imposed on financial income accrued by a person and is levied by the government. Under the Indian law, businesses and individuals are subject to payment of regular Income Tax.

    Interest accrued on Fixed Deposits are also considered as financial income and hence are considered taxable. There are a few exemptions from Income Tax as per the Section 80C of the Income Tax Act, 1961 in relation to investments like, fixed deposits, etc.

    Interest earned on a fixed deposit account goes tax free until a certain threshold, after which it is charged as per the current guidelines of the Income Tax Act.

    What is the correlation of fixed deposits with income tax?

    In simple terms, those who make investments into financial tools like tax saver fixed deposit accounts can have their tax deducted at source. Furthermore, a fixed deposit account can be declared while filing income tax returns. This ensures that lesser tax is deducted and hence better returns are earned annually by the depositor.

    Tax deducted at source becomes applicable when the depositor exceeds the cap of Rs.10,000 of interest earned in a financial year of a fixed deposit account held at a branch.

    Tax deducted at source or TDS is deducted with every payment that the bank make towards an account that is earning over Rs.10,000 as interest.

    Furthermore, TDS is deducted even if the amount has not yet been paid to the account holder physically. Accrued interest is tax deductible.

    How can TDS be avoided with fixed deposit account?

    A suggestion towards avoiding TDS would be splitting the fixed deposit amount that you have into different accounts across different branches. This should be done ensuring that the interest earned by each account does not exceed Rs.10,000.

    Choosing the time and tenure of the fixed deposit account with the view of dividing the interest accrual between two financial years aiming to not cross Rs.10,000 also would help avoid TDS.

    Tax Saver Fixed Deposit Schemes

    A tax saver fixed deposit is a scheme that is awarded by most to customers who opt for longer tenures for their fixed deposit accounts. According to Section 80C of the Income Tax Act, 1961, fixed deposits that are booked by individuals or by Hindu Undivided Family for 5 years and up to Rs. 1 Lakh are exempt from Tax deducted at source. Moreover, interest rates on tax saver fixed deposits are calculated on a quarterly basis. The interest thus accrued is reinvested into the fixed deposit account.

    TDS Refunds

    In the case that tax liability of a depositor is non-existent and yet the bank concerned has deducted tax at source on the interest earned on the fixed deposit account, then, a refund claim can be filed during the filing of income tax returns. This can be done by submitting Form 16A to the Income Tax department. The refund will be provided based on the PAN number mentioned on the Income Tax website under Form 26AS.

    Top 5 Tax Saver Fixed Deposits in India

    Following are top 5 tax saver fixed deposits offered in India for tenures of 5 years and above-

    • Lakshmi Vilas Bank offers tax saver fixed deposit accounts at interest rate of 9.05% p.a.
    • City Union Bank offers tax saver fixed deposit accounts at interest rate of 9.25% p.a.
    • Bank of Baroda offers tax saver fixed deposit accounts at interest rate of 9.05% p.a.
    • Canara Bank offers tax saver fixed deposit accounts at interest rate of 9.05% p.a.
    • Bank of India offers tax saver fixed deposit accounts at interest rate of 9.00% p.a.

    Customer Reviews

    • Post Office Fixed Deposit
      "Can increase the rate.."
      0.5 4.0/5 "Great!"
      To save the income tax I mainly opened the fixed deposit from India Post Office. I took it for 5 years of tenure and you get 9% of the interest rate for one year. The rate will accumulates like every year. Offers are good but they are slow as they are government sector.
      Was this review helpful? 49
      , bangalore
      Reviewed on Nov 06, 2015
    • SBI Fixed Deposit
      "Good One "
      0.5 5.0/5 "Blown Away!"
      SBI Fixed Deposit investments is very much useful to me. Because of this I can avail lot of offers like taking loans against my fixed deposits, it also will increase my CIBIL scores. Fixed Deposit will helps in the Income Tax Savings as well :)
      Was this review helpful? 4
      , new delhi
      Reviewed on Aug 14, 2015
    • ICICI Bank Fixed Deposit
      "Really good "
      0.5 5.0/5 "Blown Away!"
      I am holding a ICICI Fixed deposit it is really good. When I visited the Branch they took all my documents end of the day my FD was opened successfully. Its basically a tax saver plan that is why I have taken this. I used to get a copy of the TDS and I will submit that at my office and they will consider that as deductions and they will calculate income tax accordingly. I have received the FD bond and it cannot be cancelled before 5 years.
      Was this review helpful? 1
      , hyderabad
      Reviewed on Apr 25, 2015
    • Axis Bank Fixed Deposit
      "Review on Fixed deposit"
      0.5 4.5/5 "Excellent!"
      Actually I wanted to save income tax thus I opened fixed deposit and nothing other reason but the interest rate is less comparatively. I am very much impressed about Axis bank online banking as it is user friendly and their mobile application is very good. I just submitted pan card to open fixed deposit. My salary account is already with Axis bank so no much process to open FD.
      Was this review helpful? 9
      , ahmedabad
      Reviewed on Mar 23, 2015
    • Axis Bank Fixed Deposit
      "Good !!!"
      0.5 4.0/5 "Great!"
      Actually I wanted to save income tax thus I opened fixed deposit and nothing other reason but the interest rate is less comparatively. I am very much impressed about Axis bank online banking as it is user friendly and their mobile application is very good. I just submitted pan card to open fixed deposit. My salary account is already with Axis bank so no much process to open FD.
      Was this review helpful? 4
      , visakhapatnam
      Reviewed on Mar 20, 2015
    • SBI Fixed Deposit
      "Satisfied!!!"
      0.5 5.0/5 "Blown Away!"
      Maintaining account in SBI so I taken fixed deposit and another reason is to save income tax. Unable to remember the interest rate but the rate is high and that is compounding rate where get accumulated at the end of five years. SBI have to improve the customer service and should give good guidelines to customers about benefits as they are not disclosing information clearly.
      Was this review helpful? 22
      , chennai
      Reviewed on Feb 24, 2015
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