A range of tax-savings investment options are available for an investor across the country but is always beneficial for one who opts tax saver fixed deposits (FD) first. As compared to normal FDs a tax-saver FD provides an investor with tax-deduction benefits up to Rs 1.5 lakh in a fiscal year under Section 80C of the Income Tax Act. Apart from this a tax-saver FD comes with a plethora of perks and advantages described below which must be considered for an investor before investing.
1. All Indian residents and Hindu Undivided Families (HUFs) are eligible for tax-saver FDs. A tax-saver FD comes with a lock-in tenure of 5 years and a minimum/maximum investment cap of Rs 100 to Rs 1.5 lakh in a fiscal year. The interest received is subject to tax at the standard slab rate. But on the other side, if the interest earned from a tax-saver FD exceeds Rs 40,000 annually, a TDS will be deducted by the bank for non-senior citizens.
2. The TDS deduction threshold in the case of senior citizens investors is Rs 50,000. But by submitting Form-15G (for non-senior citizen) or Form-15H (for senior citizen) to the bank, one can avoid TDS in case the interest earned from FDs in a particular bank exceeds the threshold.
3. Generally, senior citizen investors get an attractive interest rate of up to 0.75 per cent per annum as compared to non-senior citizens. For interest earned up to Rs 50,000 from banks FDs only senior citizens are eligible for tax exemption. After the completion of the lock-in period of 5 years, investors are not eligible to liquidate tax-saver FDs and also can't cherish the benefit of auto-renewal facility.
4. Investors are not allowed for loans or overdrafts against tax-saver FDs. Investors can however prefer between cumulative and non-cumulative options. And nowadays tax-saver FDs come with single or joint holding and one can also open a tax-saver FD with a minor, but in this case the primary account holder can only claim tax deduction under Section 80C
5. Through visiting your nearest bank branch, or using online modes or mobile banking, you can open a tax-saver FD. To risk-averse investors, this is a perfect tax-saving investment pool as it comes with lower risk and a shorter lock-in period.
6. But before investing in a tax-saver FD it is suggested to check the interest rate offered by different banks and it is essential too because you can not liquidate such investment before the lock-in period.