The difference between a normal fixed deposit and a tax saver deposit is the first thing an investor would need to know. Are they completely different? Yes they are. With a normal fixed deposit an investor can make a deposit for a period of his/her choice, and will be able to draw the money from the deposit within a week from the date of opening. They normal fixed deposits also do not get any deduction of taxes on this deposit. Whereas if an investor, takes up a tax saver deposit, he/she will not be able to withdrawn the amount invested for a minimum period of 5 years, but will be able to claim for tax deduction as well under section 80C of the Income Tax Act 1961. But the interest earned on the tax saver deposit will still be taxed.
What exactly is Tax Exemption?
Tax exemption is to be free from tax or not be subject to tax by the government or regulatory authorities. An individual or entity is excused from paying taxes, under single or even multiple tax laws. Many governments even encourage investments in tax exempt schemes. Income on which tax is not levied is considered as a tax exempt.
Are Fixed Deposits valid for Tax Exemption?
As per the government and the announcement made by the Finance Ministry in 2006, an investment made in a tax saving fixed deposit which has a minimum of 5 years lock-in period is valid and eligible for a tax deduction as per section 80C of the Income Tax Act of 1961. The fixed deposit will need to follow the below mentioned guidelines to be eligible:
The deposit maturity will need to be a minimum of 5 years, but it can be extended, to a period of up to 10 years, depending on the bank.
The minimum amount under this deposit should be Rs. 100 and multiples thereof
The maximum amount under the deposit should be Rs. 1.5 lakhs per year.
The deduction is available for only individuals and Hindu Undivided Families
There will be no premature withdrawal for these fixed deposits.
These fixed deposit will also not have any loan facility attached to them
TDS will be charged under this deposit, on the interest earned by the deposit if it is over Rs. 10, 000 for a year. The TDS will be paid at the end of the financial year.
The tax saving fixed deposits can be made in either a single or joint name, in case the wherein the tax saving fixed deposit are made in a joint account only 1 of the holders can claim the deduction as per section 80C of the Income Tax Act 1961.
Benefits of Investing in a Tax Saving Fixed Deposit:
A Fixed Deposit usually serve a dual purpose, they help secure your savings, as well as save on the taxes payable by you. So what is the difference between the two? There are 2 types of Fixed Deposit the regular Fixed Deposits and Tax Saving Fixed Deposits, and they are completely different from each other. If an individual take a normal fixed deposit then he/she will not be able to get a tax deduction under section 80C, but with the Tax saving deposit they can avail this benefit.
Tax Exemption for NREs:
All NRE’s who make an investment in a fixed deposit will not be taxed for any interest earned on them, the NRE account will be exempt from taxes under section 10 (4)(ii) as per the Foreign Exchange Management Act, 1999.
Frequently asked questions on Tax Exemption on FD
Is premature withdrawal allowed under a Tax Saving Deposit?
No, premature withdrawal and partial withdrawal are not allowed as per Tax saving deposits.
Can I apply for a loan against my tax saver fixed deposit?
No, this deposit cannot be used as a pledge for loans and advances in any banks.
If the tax saver fixed deposit is opened jointly, who is eligible for the tax exemption?
Since the tax saver fixed deposit is eligible for tax exemption, only 1 of the joint account members are eligible, it will need to be claimed under the name of the first holder of the account.
What is the minimum tenure for the tax saver fixed deposit?
The minimum booking period for a tax saver fixed deposit, is a tenure of 5 years minimum and up to a period of 10 years depending on the bank.
Dalal Street biggies ask for tax incentives on FDs
Ahead of the Union Budget, which will be unveiled on February 1, 2018, some of the big names from Dalal Street said that there is a strong need for more tax incentives when it comes to Fixed Deposits (FDs).
They said that this will create a certain balance between fixed and variable investments.
Apart from fixed deposits, the other cause of concern was to remove fears that are hovering around security of deposits held in banks across the country.
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I have invested some money through FD. My salary account is in SBI so i have a zero ATM charges and the limit is not actually set by SBI. They do have short term FDs which is pretty good. I have invested the money of Rs. 60000 and the interest rate is 10.01% for the tenure period of 16 months. There is no lockin period. There is no hassle to getting the money back.
I have invested the money in Dena bank through Fixed deposit and the growth is not that much good. They are not taking any hidden charges. Only because of the Government undertaken bank, i have selected them. They are providing a interest rate of 6% per annum. I have invested the money of Rs. 2 lakhs. There is a lockin period of 1 year.
I have opt for fixed deposit for the tax saving purpose because I have chosen five years tenure with AXIS Bank, still its going on. Only once I Invested my money it has the locking period of five years. I have option to check my transactions through mobile app. But I have concern about the interest rate is very lesser for this FD.
I had fixed deposit with SBI then I withdrawn the amount, I done Rs. 3 lakhs of investment on my daughter name then I taken the liquidity to purchase the land, at the time I struggled a lot to take that money because the process was difficult to withdrawn the money after seven months of tenure.
I had a Fixed Deposit with Union Bank of India and its closed 18 to 19 months due to personal reasons. I am doing investment but my experience is not good with FD account. In my home town, there is no other banks so just decided to go with this bank. The returns are good.
I have one FD with HDFC, I deposited Rs. 1 lakh, I was opt for 45 days of tenure. Finally I got 6.25% of interest for 45 days. It won't cover the tax, if we need tax benefits we should go for five years term. I can track the details through netbanking, on the maturity date the amount credits automatically in the account. Even the notification can customized.
HSBC staff wrongly pre closed my fixed deposit .. and calculated the interest rates wrongly and when asked them for clarification never got back .. even after following up with them repeatedly for more than 3 months.. would highly recommend not using their services.
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A V kumar
Reviewed on Aug 24, 2019
I do have a Fixed deposit account with SBI and it was carried out by Mom and even I have account for my daughter. Its still running and they have Google application separately to access online. The returns are good. I am doing monthly investment and it was opened quite a long may be 4 years.
I just opened a Fixed Deposit with ICICI BANK and have not done any survey on this. I am account holder with them so it was easy to do FD account even they are providing 7% interest rate. The process is very user friendly and never faced any hassle. I could access this account via online.
In post office rate of interest is higher for the fixed deposit when compared to the bank, I invested Rs. 5000 on monthly basis its comes in a year Rs. 60,000 after 5 years I got Rs. 3.75,000 I got Rs. 75,000 extra. The service is not comfortable if we have any relative who working there it would supportive or else difficult.
I have FD with SBI, I have opt for one year term there is no such limitation for depositing the money. The interest rate is good for the FD, the online banking is convenient to take liquidity. They resolve the queries on time. Its most safe and secured.
I have selected state bnak of indis fixed deposit amount 1 lakhs , Tenure 5 years and Rate of interest 8 percentage after renewal fixed deposit 6 percentage is very less .while document directly bank . Customer service is not good and responsive.
I activated FD account with Kotak, I have been maintaining this account since when I opened saving account, I converted Rs. 5000 for one year. They are providing interest around 7.6% per annum, the online netbanking and mobile app is very convenient for deposit to FD.
I have invested my FD with ICICI BANK and also have a 3in1 account with them. The interest rate is pretty good. Recently started before 6months, I can do premature withdrawal and also have selected a locking period of 3 years. The customer service is good and overall am satisfied with this bank.
My Post office branch is located in own campus hence there is no queue. I opened the fixed deposit, I made one time investment for five years its has tax exemption. They are providing 7% of interest for per annum. I believe it has online access as well.
Chosen my fixed deposit from State bank of India. I have invested the money of Rs. 57000 and SBI is a most popular bank all over the India and offering all the facilities compared to bank. Since i have a salary account with them, its easy to transfer the money. They are providing the interest rate of 6.5%.
Union of India fixed deposit is same as other investment. Being an existing customer I have opt for one year of fd, the online banking feature is good to open and closing the account, they was no charges for the liquidity of fund before the maturity.
Chosen my fixed deposit from state bank of India because the given rate of interest is high. They are not deducting any service charges. I have invested the money of Rs. 1 lakhs and there is no lockin period and i have chosen the plan for 1 year and they are giving a interest rate of 6.75%.
I am using the savings account with HDFC BANK since from last 5 years, the reason for taking the fixed deposit was they are giving good rate of interest. The application is easy to use with the bank and to check the status of the account.
I opened fixed deposit with ICICI it gives tax benefits upto 80 c section, I invest Rs. 50,000 as a one time investment it has the term of five years. The online banking is good to deposit the money to take the liquidity, I have option to track the FD details also netbanking.