In the world of financial planning and tax management, a Tax Saving Fixed Deposit emerges as a dependable and time tested choice. Whether one aims to maximise their tax savings or seek a secure investment option, one can achieve financial empowerment by understanding tax saving fixed deposits. This comprehensive guide will explore the essentials of tax saving fixed deposits, like eligibility criteria, crucial documentation requirements, benefits, and much more. By the end of this article, one will possess the knowledge necessary to make informed decisions about their financial future and understand how tax saving fixed deposits can play a pivotal role in achieving their goals.
What is a Tax Saving Fixed Deposit?
A tax saving fixed Deposit is a financial product offered by banks and other financial institutions in India. It allows individuals to invest a specific amount of money for a fixed tenure while providing them with a tax benefit under Section 80C of the Income Tax Act, 1961. These deposits are commonly known as tax saving FDs or tax saving term deposits. Tax saving fixed deposits may appear different, but they function much like regular fixed deposits. The maturity amount, which includes the principal and FD interest, is directly credited to the bank account. These deposits come with a lock-in period of 5 years and typically offer interest rates ranging from 5.5% to 7.75%. It is crucial to highlight that the interest earned on tax saving fixed deposits is subject to taxation. When exploring investment options for saving taxes and seeking a secure and uncomplicated way to reduce tax liability, an income tax saving fixed deposit could be an ideal solution.
Prerequisites for Opening a Tax Saving Fixed Deposit
- Eligibility: Individuals and Hindu Undivided Families are eligible to invest in a tax saving FD. Indian residents can open such accounts, and minors can invest jointly with adults. Tax saving FDs can be held either in single or joint accounts. Cooperative and rural banks do not typically offer tax saving FDs, so one should choose a public or private bank.
- Lock-in Period: Be aware that the lock-in period for a tax saving FD is 5 years. One must wait to withdraw the funds before this period expires.
- Choice of Bank: One can choose any public or private bank (except cooperative and rural banks) to open a tax saving FD account.
- Single or Joint Account: If one opts for a joint account, please note that only the first holder can avail of the tax benefits.
Documents Needed for Opening a Tax Saving Fixed Deposit
To open a Tax Saving FD account, the following documents are to be provided:
- Government-Recognised ID Proof: One must submit one of the following documents as proof of identity: an Aadhaar Card, Driving License, Passport, Ration Card, or Voter ID Card.
- Government-Recognised Address Proof: One must also submit a document as a proof of their address. Valid options include an Aadhaar Card (if it contains their current address), Driving License, Passport, Ration Card, or Voter ID Card.
- Proof of Age (for senior citizens): Senior citizens may need to provide proof of their age, such as a birth certificate or any other government issued document that verifies their age. This is usually required when asked for verification.
- Recent Colour Passport-Size Photographs: One will likely need to provide two passport-size photographs as part of the documentation.
Process of Opening a Tax Saving Fixed Deposit
Investors have two options when it comes to starting a tax saver fixed deposit account, which depends on their existing banking relationship.
- If one already has an account with the bank, a tax saver fixed deposit can be opened with the same bank. Contact the relationship manager or visit the bank’s website, to initiate the process.
- If one chooses to invest in a tax saver fixed deposit with a bank where they don’t have a savings account, there is a requirement to complete the KYC (Know Your Customer) process. Once the formalities are fulfilled, one can effortlessly initiate a tax saving fixed deposit with the bank of their choice.
Tax Saving Fixed Deposit Interest Rates
The following list shows the tax saving fixed deposit interest rates in India for various banks:
|General FD Rate
|Senior Citizen FD Rate
|DCB Bank FD
|Union Bank of India FD
|Canara Bank FD
|Federal Bank FD
|Dhanlaxmi Bank FD
|Indian Overseas Bank FD
|Tamilnad Mercantile Bank FD
|Bank of Baroda FD
|Punjab National Bank FD
|Karur Vysya Bank FD
|Central Bank of India FD
|Punjab and Sind Bank FD
|City Union Bank FD
|Indian Bank FD
|South Indian Bank FD
|CSB Bank FD
|Bank of India FD
|Karnataka Bank FD
|Bank of Maharashtra FD
|Nainital Bank FD
Advantages of Opening a Tax Saving Fixed Deposit
- Tax Deduction Benefit: Investing in a tax-saving FD allows one to claim a deduction under Section 80C of the Income Tax Act for the primary account holder, with a maximum limit of Rs. 1,50,000 in a fiscal year.
- TDS Exemption with Form 15H/15G: While tax-saving FDs are subject to TDS regulations, individuals not liable to pay tax can submit Form 15H/15G to the bank. This submission ensures the bank does not deduct TDS from the earned interest.
- Nomination Facility: Tax-saving FDs offer the flexibility to designate a nominee, ensuring financial security.
- Branch Transfer Option: Customers can easily transfer their tax-saving FD from one branch to another by submitting a written request to the branch where the FD is currently held.
- Minor Accounts for Young Savers: Tax-saving fixed deposits can also be opened in the name of minors, providing them with a valuable financial planning tool.
- Senior Citizen Special Rates: Senior citizens enjoy preferential interest rates on these deposits. For instance, the Bank of Baroda offers an additional 0.5% interest rate on tax-saving FDs for senior citizens, applicable to deposits below Rs. 1 crore.
Tax saving fixed deposits are a wise option for individuals seeking to optimise their tax savings while ensuring consistent investment growth. This comprehensive article equips readers with a deep understanding of the essential features and benefits, enabling them to make well informed decisions about their financial future. By seamlessly incorporating tax saving fixed deposits into their overall financial planning strategy, individuals can confidently pave their way towards a secure and prosperous tomorrow.
Tax Saving Fixed Deposit FAQ’s:-
Unfortunately, no. Tax-saving FDs do not permit premature withdrawals. In accordance with the regulations outlined in the Bank Term Deposit Scheme of 2006, one must wait until the completion of the five-year tenure before accessing their funds.
The minimum deposit amount for a Tax Saver FD account can differ depending on the bank with which one chooses to open the account.
These types of FDs provide 5-year tax saving fixed deposit interest rates ranging from 5.5% to 7.75%.
Tax-saving fixed deposits stand out as a secure investment avenue for managing tax obligations. They offer a shield for the invested capital, guarantee returns, and maintain a fixed interest rate throughout the investment period.
Salaried individuals can avail of a deduction of up to Rs 1.5 lakh under Section 80CCD(1) for their contributions to their NPS account.