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 Whereas if an investor, takes up a tax saver deposit, he/she will not be able to withdrawn the amount invested for a minimum period of 5 years, but will be able to claim for tax deduction as well under section 80C of the Income Tax Act 1961.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.
Display of any trademarks, tradenames, logos and other subject matters of intellectual property belong to their respective intellectual property owners. Display of such IP along with the related product information does not imply BankBazaar's partnership with the owner of the Intellectual Property or issuer/manufacturer of such products.
I am having a savings account with State Bank of India hence i have selected the Fixed deposit investment scheme with them. They are providing the interest rate of 8%. I have invested the money 2 years back and there is a lockin period of 72 months.
Was this review helpful?
Reviewed on Mar 02, 2020
Kotak Mahindra bank is a reliable bank and good management thats the reason i have invested the fixed deposit scheme in this bank. They have provided me a interest rate of 7% and i have kept for the period of 1 year and 1 month. Overall, I'm satisfied with their services.
I have purchased HDFC Fixed deposit which I am renewing for every 13 months. They have given me an interest rate of 7% and There is no processing fee and there is no locking period as well. If I'm withdrawing FD amount before locking period, they are charging some amount.
I went to the nearby branch for the Punjab National Bank for taking my fixed deposit as per my family members recommendation. I have invested the money of Rs. 50000 there was a lockin duration of 6 years when i withdraw the money, i got the money of Rs.1 lakhs. They have offered me a interest rate of 7%.
I was having my savings account from Post office hence i have invested my money into Post office Fixed deposit scheme. I have invested the money of Rs. 25000. There is a lockin period of 10 years. I have invested the money in the year of 2011. Post office service is proper. Overall, I'm happy about the services.
I have invested some money as a Fixed deposit in HDFC Bank and the interest rate is not that much great because they are giving interest as compared to others. I have invested the money of Rs. 3L and there is a locking period of 5 years. Its 7% interest rate. If they are increasing the interest rate, it would be fine. Since I do all my transactions with this bank, I have selected same for my FD as well.
I have chosen my fixed deposit scheme from State bank of India because I'm maintaining my salary account with them and they provided rate of interest is fine for me. I have invested the money of Rs. 2.75 lakhs. There is a locking period of 45 days. They are giving interest rate of 4.5%. Overall, I'm satisfied with their services.
I have been investing the money of Rs. 3 lakhs for the fixed deposit. I have selected Kotak mahindra bank for the FD because their net banking facility is very different when i compared to other. I can access everything regarding the account hence its easy to handle the transactions. I'm not sure about the interest rates. 7 months before, i have invested the money.
Its because of the competitive interest rates, i have selected the Fixed deposit in Kotak Mahindra bank. I have invested the fixed deposit 1.5 years ago and there is a lockin period of 5 years. They have invested the amount of Rs. 7.5 % and the employees are helpful in the branch.
I have a Fixed deposit in Axis bank. I have invested the money of Rs. 10000 for two FDs. There is a lockin duration of 1 year. They are giving a interest rate of 7%. Through net banking, i have activated this Fixed deposit. There is no tax benefits available. Axis bank service has been good. Overall, I'm happy about their services.
Since last 15 years, i have a account with Oriental bank of commerce thats the reason i have invested the money in fixed deposit with the same bank. I have invested the amount of Rs. 11 lakhs. They are giving the interest rate of 6.5%. There is no locking period but i have chosen the duration of 1.5 years. There is no additional charges deducted for this fixed deposit.
Interest rate is very low in Indian post office Fixed deposit scheme because they are providing only 8.5%. I have chosen this office because of the child benefits. I have invested the money of Rs. 1.5 years. Its 3 years lock in period. Overall, I'm satisfied with the service provided by post office employees.
I have invested the money in SBI for a fixed deposit and based on my wife recommendation i have chosen it. They are providing the interest rate of 7.25%. They have option to select the lock in period in that i have chosen 5 years. We had visited their branch and the response was good.
Its easy accessible and to redeem so that i have invested the money in Fixed Deposit with HDFC BANK. I have invested the money of Rs. 2.5 lakhs and they have provided me a interest rate of 7.5%. There is no locking period. I didn't got any additional charges till now.
I have paid the money of Rs. 4.5 lakhs as a fixed deposit in the Indian post office. For the safety purpose, i have chosen the post office account. They are offering me a interest rate of 7.9%. There is a lockin period of 5 years. If i withdraw the money in 1 year, they will reduce the interest rate of 2% and after 3 years, its 1%.
Interest rates are less in Central Bank of India so I had taken a fixed deposit. I have invested the money of Rs. 1 lakh in my wife's name. Branch is near from my place so I have chosen this bank. Yearly once, I get the money of Rs. 6,765 for the interest. There is a locking period of 1 year.
I am doing Fixed Deposit with ICICI BANK and its been around 5years. They haven't been paying good interest and its more or less same like other banks as I used to hold my salary account with ICICI, I have decided to be with one bank. There is no locking period and its flexible. They do give good support and the app is user friendly. Even deposit account can be opened through i-mobile or net banking itself.
I had a Fixed Deposit in State Bank of India, I have completed the tenure before 3months ago. I have no issues with the customer service. They are given me 7% interest rate for 2years. There is no profit and processing fee. I got an online access, where I can check the interest rate anytime on the YONO app or else SBI online.
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.