nina chohan July 7, 2022

One of the safest and most reliable investment vehicles banks offer is a fixed deposit or FD. It offers investors a competitive interest rate, guaranteed returns, and other advantages like liquidity and safety. The government imposes several different taxes on the people living in the country. With the money brought in from taxes, efforts are made to raise the general population’s standard of life and stimulate economic growth by implementing new initiatives. If your annual income falls within the taxable slab, which means that it is greater than a specific threshold, you must pay taxes. 

On the other hand, the government provides deductions and special tax exemption sections that can assist you in lowering the amount of income tax that you owe, at least to some degree. You can disclose your assets and payments and earn maximum tax deductions if you file your taxes according to Section 80C of the Income Tax Act of 1961. This section is one of the most popular tax exemption sections. During each fiscal year, you can file a claim under Section 80C for up to 1.50 lakh rupees depending on your payments and investments.

What does it mean to have a Tax Saver Fixed Deposit?

A Tax Saver Deposit Account is one of the favored financial products offering tax exemptions. Another name for this type of deposit is a Tax saving FD. Through the use of a Tax saving FD, investors can qualify for a tax deduction of up to 1,50,000 rupees on an annual basis.

Listed below are some considerations to keep in mind when investing in a Tax Saver fixed deposit:

Eligibility

The Tax saving FD is offered to Resident Individuals and Hindu Undivided Families only. Additionally, a juvenile has the opportunity to invest in a Tax Saver FD with an adult. However, other organizations such as corporate, partnership businesses, trusts, and so on cannot benefit from the scheme in any way, shape, or form.

Initial Commitment Time

There is a commitment requirement of five years for the Tax saving FD. Therefore, unlike traditional FD, tax saver fixed deposits do not allow for premature withdrawals, loans against fixed deposits, overdraft facilities, or other similar services. In addition, there is no automatic renewal provision for these contributions. At the time of maturity, however, you have the option to extend the FD for a further five years.

Interest Rate

The Tax saving FD, similar to other kinds of fixed deposits, also provides the option of guaranteed returns. The interest rate for a Tax Saver Fixed Deposit is typically equivalent to the interest rate provided for a standard fixed deposit with the same term length. Additionally, the interest rates offered to elderly citizens are often increased by 0.5 percentage points compared to those offered to non-senior citizens. Additionally, it would be best to remember that the interest rates can change from one financial institution to the next. There is a difference in the interest rates applied to Resident individuals and HUFs.

Tax Deduction

Section 80C of the Income Tax Act of 1961 allows you to claim a tax deduction against the Tax Saver FD for up to Rs 1,50,000 in a single fiscal year. However, the interest you earn on the fixed deposit is subject to taxation at the rate that applies to you. In addition, according to Section 80TTB of the Income Tax Act, older citizens are eligible for a tax exemption on interest income of up to Rs 50,000 if they meet certain requirements.

Premature and Unexpected Withdrawal

Since Tax saving FD does not allow partial or completely premature withdrawals of funds, it is not recommended to invest in one if you anticipate needing the money soon. In addition, unlike conventional fixed deposits, the Tax Saver FD cannot have loans or overdraft facilities taken against it, nor can it be used as collateral for any financial transactions.

Holding Mode for Your Account

A single or combined application can be submitted for the Tax Saver FD. However, only the first account holder is qualified to receive tax benefits if the deposit was made jointly.

Distributions of Interest

You can receive the interest in your bank account on a monthly or quarterly basis and reinvest it in the principal amount, depending on which of the flexible interest payment options you select.

Transfer

In case you have relocated yourself, you are allowed transfer the Tax saving FD to the branch of the bank and post office that is most convenient for you. This will ensure that you receive uninterrupted customer support.

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