In the section 80C category of financial instruments as stated in the Income Tax Act tax-saving FD with banks is one of the most common investment options for both regular investors and senior citizens. Many individuals use this investing method for tax-saving considerations since they are perceived as less risky relative to mutual funds, ELSS and so on. A tax saving FD can be a good bet for you if you are searching for a secure investment alternative for tax saving. In addition to tax benefits, FD interest can serve as a means of regular income for senior citizens to cover their retirement expenditures.
Eligibility to open a tax saving FD account
Only resident individuals and Hindu Undivided Families (HUFs) can open a tax saving FD account according to existing income tax legislation. Unless the bank allows you to do so without opening a savings account, you can open a tax saving FD account either with a bank where you currently have a savings account with or with another bank. You will be asked to follow the Know-Your-Customer (KYC) procedure in the above situation. You will be asked to have self-attested copies of your ID proof, address proof and passport size photographs in order to do the KYC procedure. Before submitting the KYC form, you must also take the original documents whose self-attested copy you are presenting with you as bank executives will do the validation.
On such FDs, the interest rate provided differs throughout banks. Generally banks offer cumulative interest or non-cumulative options on tax saving FDs from which you can choose from. Cumulative selection implies that by the time of maturity, interest earned on your principal will be reinvested and returned to you. Whereas the interest given by the bank will be paid to you on a monthly, quarterly, semi-annual and annual basis under the non-cumulative alternative. Higher interest rates on tax-saving FDs are typically provided to senior citizens.
Tax saving FD rates for general public
|Banks||ROI in %|
|Equitas Small Finance Bank||6.75|
|AU Small Finance Bank||6.50|
Tax saving FD rates for senior citizens
|Banks||ROI in %|
|Equitas Small Finance Bank||7.25|
|AU Small Finance Bank||7.00|
Minimum and maximum deposit limit
The minimum deposit limit for the investors varies from bank to bank for a tax saving FD. One cannot, though, deposit more than Rs 1.5 lakh in these deposits in a fiscal year.
Maturity period of tax saving FD
It is generally known to all that tax saving FDs comes with a lock-in period of 5 years. Which means that premature withdrawal is not allowed before 5 years according to the Bank Term Deposit Scheme, 2006. A tax-saving FD cannot be used as collateral or to apply for a loan if compared to regular FDs.
Account holding types
By individually or jointly one can open a tax saving FD. In case of joint-holder the tax benefit under section 80C will only be provided to the primary holder only.
Under section 80C of the Income Tax Act, investment amount of up to Rs 1.5 lakh count for tax benefit in a fiscal year. That being said, you must note that in your pocket, interest paid/accrued on the principal is completely taxable. As per your tax slab interest will be applied to your income and taxed. The interest income comes under the classification of 'Other Sources' Income. Moreover, if the interest received reaches Rs.40,000 in a financial year from all the accounts kept with the bank, banks subtract tax at source. In order to validate the specifics of the deduction, a TDS certificate will be given.