Planning for 5 Year Tax Saving Fixed Deposit? List of Things to Check

Benefits of 5 – Year Tax Saving Fixed Deposits

• Offers high-interest rates compared to the normal term deposits.
• Lock-in period is 5 years.
• The risk factor associated with tax-saving fixed deposit is nil.
• Best suited for risk-averse investors.
• Tax Deducted on Source (TDS) from the interest earned on FDs is applicable.
• An investor can only deposit a one-time lumpsum amount.
• Invested amount is completely safe and returns are guaranteed.

Benefits of 5 – Year Tax Saving Fixed Deposits

• Non - Resident Indians can also invest in tax-saving fixed deposits.
• Earn tax deduction of up to Rs 1.50 lakh per annum under Section 80C of the Income Tax Act 1961.
• The minimum deposit amount varies from one bank to another.
• Get loan facility on the fixed deposit at a lesser interest rate.
• The premature withdrawal facility is not available until the completion of the 5 - year lock-in period.
• Nomination facility is available.
• Senior citizens will get an extra 0.50% addition to the existing interest rate
• It provides an option of a joint account, in which only the primary account holder will have an eligibility to claim for tax benefits.

Eligibility Criteria for 5 Year Tax Saving Fixed Deposits

• Any individual can open the 5-year tax-saving fixed deposit
• Resident Indian
• It can be opened in a single and joint account
• Hindu Undivided Family (HUF)

Let's understand a list of things to check before investing in a 5 - Year Tax Saving Fixed Deposit:

List of things to check before investing in a 5 – Year Tax Saving Fixed Deposit:

• This fixed deposit can be opened with a minimum amount, which usually varies from one bank to another.
• An investor can park their funds in these term deposits through any public or private sector banks (the exception here is co-operative and rural banks).
• Only individuals and Hindu Undivided Family (HUF) can open a five-year tax-saving fixed deposit scheme.
• The lock-in period for these deposits stands at 5 years.
• Any kind of premature withdraw or loan facilities is not allowed on these fixed deposits.
• Investment in five years fixed deposits qualifies for exemption under Section 80C of the Income Tax Act 1961.
• These fixed deposits can even be opened at a post office (Post Office Time Deposit) which is also eligible for securing deduction.
• The fixed deposit opened in a post office can be transferred from one post office to another.

List of things to check before investing in a 5 – Year Tax Saving Fixed Deposit:

• Nomination facility on the 5 - year tax saving a fixed deposit is available.
• One can either operate this fixed deposit either in ‘Single' or ‘Joint' mode of holding. In case of a joint mode of holding, only the primary depositor (first holder) can claim the tax benefits.
• The interest rates offered on the five-year tax-saving term deposits in banks is slightly higher to senior citizens as compared to a normal citizen.
• The 5-year post office time deposit does not offer any kind of differential interest rates to senior citizens and non - senior citizens.
• The interest earned is taxable (based on investor's tax bracket).
• The interest amount on the deposits is payable either monthly/quarterly or it can be reinvested.
• An investor can avoid TDS deduction on five-year tax savings fixed deposit in banks by submitting Form 15G (Form 15H in case of senior citizens).
• Senior citizens are eligible to claim a deduction of Rs 50,000 on the interest earned from this investment scheme as per Section 80TTB of the Income Tax Act.

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About the Author

Archana is a Content Writer at GoodReturns. She has been writing articles related to investment planning and personal finance for more than two years.