Those who are hunting for a secure and simple tax-saving choice a tax-saving fixed deposit can be a good bet. Tax saving FD is among the tax saving techniques which can be deposited under section 80C of the Income Tax Act in order to avoid tax. By visiting a bank, submitting the application form and cheque, one can conveniently participate in this FD. In addition, if you can hold the FD in the same bank branch on which you collect the cheque, then the transfer of money can occur easily and within a few hours the deposit can be made. Many banks also enable their net-banking facilities to invest in tax-saving FD if you have exposure to it and are relaxed using it.
This is one of the debt investments providing a tax advantage under section 80C with the shortest lock-in period of five years and providing a periodic interest pay-out alternative. Section 80C tax incentives are often provided by five-year NSCs, although they are cumulative mechanisms that do not provide periodic interest payouts. Consequently, tax saving FDs are a relatively more stable, stable and simple alternative for debt investments. A few considerations to remember before making investments in Tax- Saving FD are as follows:
- HUFs, resident individuals and minors are allowed to invest in a tax saving FD.
- A minimum amount that ranges from bank to bank can be deposited on the FD. For instance, the maximum amount in the fiscal year is Rs 1.5 lakh, which is the cap for investment in tax saving under section 80C.
- A tax saving FD comes with a lock-in period of 5 years, but premature withdrawals and loan against these FD's are not permitted.
- With the exception of cooperative and rural banks, a person can deposit in these FD's through either public or private sector banks.
- Deposit in a 5-year post office time deposit is also liable for an exemption under section 80(C) of the Income Tax Act, 1961.
- You can either keep these FD's in 'Single' or 'Joint' form. In the event of a joint holding type, the tax gain is only applicable to the first owner.
- Under a tax saving FD scheme TDS is applicable on the interest received is taxable as per the tax bracket of the holder.
- The interest amount is either due on a monthly/quarterly basis or can be reinvested though. By submitting Form 15G (or Form 15H for senior citizens) to the bank, an individual can avoid TDS on the interest received. For investors, if the gross interest earned crosses Rs 40,000 in a financial year with no adjustment on taxation on the interest earned, TDS will be applicable though. Senior citizens can seek a deduction of up to Rs 50,000 on interest received from deposits under section 80TTB on the Income Tax Act.
- Under a tax saving FD scheme nomination facility is open. That being said, in the event of a deposit being paid for and kept by or on behalf of a minor, no nomination facility is available.
- If compared to the general public senior citizens are provided with higher interest rates on tax saving FDs by most of the banks. For tax saving FDs, this interest rate gap still persists. The post office does not, nevertheless, promise senior citizens with higher interest rates.