Tax saving fixed deposits can be your ideal partner for your tax saving purposes. In the section 80C category of financial instruments, tax-saving bank FD is one of the most prominent investment options, as stated in the Income Tax Act. Many individuals use this investment alternative for tax-saving purposes since they are perceived as less risky if opposed to mutual funds or share markets. In addition to tax relief, FD interest can act as a source of regular income for senior citizens to cover their retirement life.
Eligibility and documents required
Only resident individuals and Hindu Undivided Families (HUFs) can open a tax-saving FD account according to existing income tax legislation. Some banks require you to do so without opening a savings account, and even you can open a tax-saving FD account either with a bank you currently have a savings account with or with another bank respectively. It is possible to open a tax-saving FD individually or jointly with a nomination facility. That being said, if the holding mode is mutual, then, as specified on the FD receipt, the deduction under section 80C is only applicable to the first or primary holder.
You will be asked to complete the Know-Your-Customer (KYC) procedure in the following scenario. You will be asked to have self-attested copies of your ID proof i.e. Aadhaar and PAN, address proof i.e. Driving License, Passport, PAN or Aadhaar, and passport size photographs in order to complete the KYC procedure. Before acknowledging the KYC form, you must also take the original copies of the documents whose self-attested copy you are submitting to the bank because the bank executives can verify the same on your behalf.
Higher interest rates provided by top 5 banks
On such FDs, the interest rate provided differs across banks. You can prefer between the cumulative interest or non-cumulative tax-saving FD options that most of the banks usually provide. Cumulative option implies that at the time of maturity, interest earned on your principal will be re-invested and compensated to you. On the other side, interest will be reimbursed to you on a monthly, quarterly, half-yearly or annual basis as proposed by the bank in the case of the non-cumulative substitute.
For general public
|Bank||ROI in %|
|AU Small Finance Bank||6.50|
|City Union Bank||6.00|
For senior citizens
|Bank||ROI in %|
|AU Small Finance Bank||7.00|
Minimum and maximum investment threshold
The minimum investment cap for a tax saving FD differs across bank to bank. But one can invest up to a maximum cap of Rs 1.5 lakh in these deposits in a financial year.
Tax saving FDs comes with a lock-in tenure of 5-years. You can not exit from these FDs before the maturity date of five years from the date of deposit, as per the Bank Term Deposit Scheme, 2006. The tax-saving FD can not be used as collateral or pledged to avail loans as well if compared to regular Fds of banks.
Under section 80C of the Income Tax Act, the investment amount of up to Rs 1.5 lakh count for deduction in a fiscal year. That being said, you must remember that in your account, interest earned / accrued on the principal is completely taxable. Based on your income slab interest will be added to your income and taxed at the prevailing tax rates. A TDS will be deducted by the bank in case the interest payments on FDs with a single bank surpass Rs 10,000 in a fiscal year. You can submit Form15 G or Form 15H, as applicable, to skip TDS.