Tax saver fixed deposit is a type of fixed deposit by investing in which you can get tax deduction under section 80C of the Indian Income Tax Act, 1961. Normally, tax saver deposits are of two types - “Single holder Type Deposits" and “Joint holder Type Deposits”. Such deposits are offered for a lock-in period of 5 years. Any investor can claim a deduction of maximum Rs.1, 50,000 by investing in tax saver fixed deposits.
Key highlights of Tax Saver FDs:
- Maturity period of a tax saver FD is 5 years.
- Get tax deduction up to Rs.1, 50,000.
- Deduction is available to individuals, members of Hindu undivided family (HUF), senior citizens and NRIs.
- The interest earned from tax saver fixed deposits is taxable. Tax will deducted at source.
- Premature withdrawal is not available.
- You cannot get loan against tax saver fixed deposits.
- Tax saver deposits can be opened both singly and jointly. In case of a joint account, tax benefit will be availed by first holder of the deposit as per the section 80C of the Income Tax Act, 1961.
Tax Deductible Fixed Deposits
As per current tax laws an individual can claim a tax deduction for investments in tax saving fixed deposits of up to Rs.1.5 lakh. The amount will be deducted from the total gross income of the individual to arrive at the taxable income. Section 80C of the Income Tax Act permits this deduction. Listed below are some criteria to be fulfilled to claim for this deduction:
- Hindu United Families (HUF) and individuals only are eligible to invest in tax saving fixed deposit schemes.
- The Fixed Deposit can be of the minimum amount as stipulated by the bank.
- The tax saving fixed deposits have a 5-year lock-in period. Premature withdrawals and and loans against the Fixed Deposit is not permitted.
- Individuals may invest in these Fixed Deposits through any private or public sector banks, except co-operative and rural banks.
- The Post Office Time Deposit of 5 years also qualifies for deductions under Section 80C of the Income Tax Act of 1961.
- Post Office Fixed Deposits are transferrable between post offices.
- Fixed Deposits can be held either individually or jointly. In case of a joint fixed deposit the tax benefit will be given to the first holder of the Fixed Deposit.
- Interest earned on these Fixed Deposits is taxable under the investor’s tax bracket, therefore, Tax Deductible at Source (TDS) is applicable. The interest payable on the investment is either on a monthly basis or quarterly basis, this interest may be reinvested.
- Tax Deductible Fixed Deposits have a nomination facility.
- Banks offer slightly higher interest rates to senior citizens on these Fixed Deposits. This increased interest rate exists for Tax Saving Fixed Deposits.
Benefits of investing in Tax Saver FDs
Tax saver fixed deposits come with a number of benefits which include:
- The major benefit of investing in tax saver fixed deposit is that it helps you save income tax.
- You can start investing with as little as Rs.100 and add to your savings.
- Since premature withdrawal is not available in case of tax saver fixed deposits, you can be sure of receiving assured returns, apart from saving tax.
- Nomination facility is available. You can nominate/authorize someone to withdraw your deposit before or post maturity in the event of your death.
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How to Avoid TDS on FDs
Tax Deducted at Source (TDS) is applicable to all interest income that is earned in India, including Fixed Deposits (FDs). A TDS deduction is made as per the prevailing income tax rules. While it is a crime not to pay tax of FDs, some wise financial planning will go a long way in helping depositors paying unnecessary tax and penalties. Let us understand more about how to avoid TDS on FDs and do better tax planning when it comes to FDs. First of all, it is important to know that in every financial year if the income earned through interest exceeds Rs.10,000, the applicant or account holder will have to pay tax at any cost. However, if the interest earned is less than Rs.10,000, then the account holder will not have to pay tax.
Self-declaration: If the interest earned from FDs and the total taxable income earned during the financial year is not more than the prescribed taxable limit, please submit form 15G or 15H, whichever is applicable. These forms should be duly filled in, signed and then submitted to the bank to make sure TDS is not deducted from the interest income that is earned on FDs. However, please note that under any circumstances if the interest earned is eligible for tax deduction, then, even if the above forms are submitted, the tax will be deducted and the forms will be considered void. It is also possible to fill and submit these forms online without any hassle and most banks in India offer this facility. To be eligible to apply for self-declaration using these forms the total interest income earned must not exceed Rs.10,000 per annum.
Which form is for whom? There is always a confusion regarding form 15H and form 15G. Form 15H is for senior citizens, while the latter is for others. Form 15G can be filled by individuals or a Hindu Undivided Family. The applicant must be a resident of India who is 60 years or less and his/her income should not exceed the prescribed tax limit. Form 15H can only be filled by an Indian resident who above 60 years of age and by an individual who falls below the prescribed tax limit.
Managing investments better: Sometimes, when it comes to making wise financial decisions, timing is everything. In the case of FDs, if one can make investments in such a manner that it does not exceed Rs.10,000 in one year, then it will be the best option. For example, one could invest in a 1-year fixed deposit in the month of October, in such a case, the financial year will be split into two. This is because the financial year comes to an end by March 31. This is one of the options that FD investors have in order to save TDS.
The second applicant waived off TDS? If you are the first applicant in a joint FD, then TDS will be deducted from your account automatically if the interest income earned exceeds the limit. However, if you are the second applicant in a joint account, then TDS is not likely to be deducted. It helps to make a note of this point before opening a joint account.
Distributing investments: Another option that investors have is to distribute investments across various banks, instead of putting it all in one bank.
PAN: The interest earned on all FDs are fully taxable and if the interest income exceeds Rs.10,000, TDS will be levied at the rate of 10%. Please note that it is very important for the FD account holder to furnish his/her Permanent Account Number (PAN) details, then banks will deduct TDS at a higher rate, which is usually 20%.
Late submission: In case a person has forgotten to fill in and submit the self-declaration forms, there is no need to fret. In such a case, even if the TDS deduction has already been made, the Income Tax department will make a refund, if the account holder files for tax returns. This can be done every financial year without any hassle. The only disadvantage of this method is that the account holder has to wait for a long time to receive his/her refund. The account holder will have to wait until the next July and for the refund to be processed it will take another few months.
FDs still remains one among the most preferred investment options because they offer certain guaranteed returns without any financial risk element. It is very important to take all necessary steps to do tax planning and better manage your investments instead of paying hefty taxes. Other than the methods mentioned above if one makes other investments, one can claim tax exemption, and this will help reduce the tax burden on the individual to a certain extent.
Who is eligible to open a Tax Saver FD?
- All resident individuals with a pan card.
- Non–resident Indians (NRIs).
- Senior citizens above the age of 60 years are eligible to open a tax saver fixed deposit account.
Things To Know About Tax Saving Fixed Deposits
As per current tax laws, if one invests in a tax saving FD, he/she can claim the invested amount up to a maximum of Rs 1.5 lakh as a deduction from his/her income. The amount invested this way is meant to cut from gross total income to arrive at taxable income. This kind of deduction is permitted under Section 80C of the Income Tax Act. Section 80C further determines the upper-limit of investment – which is currently fixed at Rs 1.5 lakh. The Tax-saving fixed deposit is one of the few gateways presently permitted for investment for one to claim a tax break according to Section 80C of the Income Tax Act.
Only Individuals and HUFs can make investments in the tax saving fixed deposit (FD) scheme. This FD can be put together with a certain minimum amount - and this amount varies from one bank to another. Fixed deposits have a lock-in time of 5 years, and withdrawals before maturity are not permitted, as are not loans against these FD's.
One can invest in these FD's via any of the public or private sector banks, but not cooperative and rural banks. An investment made in the Post Office Time Deposit for a period of 5 years also qualifies one for deduction under the same section 80(C) of the Income Tax Act, 1961. This Post Office Fixed deposit comes with the provision of being transferable from one Post office to another.
Top 5 banks offering Tax Saver FDs in India:
There are many banks in India which offer tax saver fixed deposits for 5 years. Mentioned below is a number of top five Indian banks offering tax saver fixed deposits:
- Axis Bank
- ICICI Bank
- HDFC Bank
- SBI Bank
- IDBI Bank
Tax Saver Fixed Deposits Interest rate comparison
Given below is a clear comparison of interest rates of the top 5 Tax Saver Fixed Deposit schemes in India:
||Name of the Tax Saver FD scheme
||General rate of interest
||Rate of interest for senior citizens
||Axis Bank Tax Saver Fixed Deposit
||7.25% per annum
||7.75% per annum
||ICICI Bank Tax Saver Fixed Deposit
||7.50% per annum
||8.00% per annum
||HDFC Bank Tax Saver Fixed Deposit
||7.50% per annum
||8.00% per annum
||SBI Tax Saving Scheme 2006
||7.00% per annum
||7.25% per annum
||Suvidha Tax Saving Fixed Deposit Scheme
||7.50% per annum
||8.00% per annum
*The rates are subject to change without prior notice. The customers are requested to contact the respective bank for the revised rates.