Learn everything about tax saving fixed deposit

Investing in a fixed deposit is as easy as hanging in the mall; anyone can do it very easily. It also remains one of the popular investment choices for investors as it is free from any risk and also provides you with good returns on your investments.

What is a fixed deposit?

Fixed deposits are the investment instruments where you deposit a fixed amount of money in your FD account from tenure ranging between 7 days to years. Banks or non-banking institutions provide principal amount along with FD interest rate earned on the investments at the end of the maturity period. The rate of interest is determined by banks based on the RBI’s policy and are not subject to market risks.

What is tax-saving FD?

While everything is so good about investing in a fixed deposit, but still you don’t get any tax benefits on your fixed deposit investments. However, there is a cache! If you wish to get tax deductions on your investments, you can invest in tax-saving FD. Tax-saving FD is like regular FDs except that you have to invest for a minimum period of 5 years. You can get tax benefits up to Rs. 1.5 lakhs under Sec 80 C of the Income Tax Act.

Here is everything you should know about tax-saving FD:

• Like a normal FD, you can invest in Tax-saving FD with a joint account. However, only the first account holder can get tax benefits on the investment.
• Individuals and Hindu Undivided Family can invest in a tax-saving FD.
• Corporate and business entities cannot invest in a tax-saving FD.
• Like, a normal FD, the interest earned on FD investment is taxable as per your tax bracket.
• The most significant disadvantage of investing in these investments is that you cannot withdraw your money before the lock-in period of 5 years, and if you do you will have to pay hefty charges for premature withdrawal.
• Also, you can invest in tax-saving investments in public or private banks. The tax-saving FD is not available with rural or co-operative banks. However, you can invest in a post office tax-saving fixed deposit, which is also transferable from one post office to another.
• Like a regular FD, you need to invest a minimum of Rs. 500 in your FD account, however, this amount may vary from bank to bank. Thus, you must check with your bank before investing in a tax-saving FD.
• As a tax-saving FD is a long term commitment, thus you must name a nominee for your fixed deposit account.
• The rate of interest on a tax-saving FD may be higher than a regular FD. The returns are higher for senior citizens.
• Unlike a regular FD, you cannot get loans against tax-saving FD.

How can you receive interest your tax-saving fixed deposits:

Like a regular FD, you can choose any of the two FD:

1. Cumulative fixed deposit: In a cumulative fixed deposit, you will receive interest at the end of the maturity period. In the case of tax-saving Fd, the lock-in period of investments is five years. The rate of interest is higher and can help you to get higher returns
2. Non-cumulative fixed deposit: In a non-cumulative fixed deposit, you can choose to receive the interest on a monthly, quarterly or annual basis to receive regular income in your account. However, the rate of interest is lower.

Conclusion: A tax-saving fixed deposit is indeed the right choice for getting high returns along with the tax benefits on your investments. However, you cannot withdraw the FD prematurely before the lock-in period of 5 years. Thus, if it gives you jitters, you can invest in a regular FD.

Read more: Working Capital: Learn what your business is and how it works

Summary:Learn everything about tax saving fixed deposit 

Tax-saving FD is like regular FDs except that you have to invest for a minimum period of 5 years. You can get tax benefits up to Rs. 1.5 lakhs under Sec 80 C of the Income Tax Act. 

Here is everything you should know about tax-saving FD:

• You can invest in Tax-saving FD with a joint account. However, only the first account holder can get tax benefits on the investment.
• Individuals and Hindu Undivided Family can invest in a tax-saving FD.
• Corporate and business entities cannot invest in a tax-saving FD.
• Like, a normal FD, the interest earned on FD investment is taxable as per your tax bracket.
• You cannot withdraw your money before the lock-in period of 5 years, and if you do you will have to pay hefty charges for premature withdrawal.
• Also, you can invest in tax-saving investments in public or private banks. The tax-saving FD is not available with rural or co-operative banks.
• Like a regular FD, you need to invest a minimum of Rs. 500 in your FD
• As a tax-saving FD is a long term commitment, thus you must name a nominee for your fixed deposit account.
• The rate of interest on a tax-saving FD may be higher than a regular FD.
• Unlike a regular FD, you cannot get loans against tax-saving FD.