Tax Saving Fixed Deposit: Features, Rate & Calculator

The Tax Saving Fixed Deposit gives you fixed return as well as benefit of tax savings. It is one of the 5 most popular tax saving options. The other four are NSC, PPF, ELSS and Term Insurance. Among the 5 most popular tax saving methods, the tax saving FD scores on many fronts. However, It has some shortcomings as well. You must know the feature and taxability of tax saving fixed deposit before investing.

Features Of Tax Saving Fixed Deposit

Easy To Open An Account
You can open a tax saving fixed deposit in a government or private banks. Most of the bank branches gives this facility. The cooperative banks can’t open a tax saving FD.
HUF can also open a tax saving fixed deposit account. You can open a tax saving account jointly as well.
The tax saving FD account can be transferred from one branch to another branch of the bank.

Fixed Return
The tax saving Fixed deposit gives you a fixed interest rate. The rate does not change during the deposit period.
The interest rate on tax saving FD is decided by the banks. The rate of interest is applicable as per prevailing 5 yr deposit rate.
Senior citizens get a higher interest rate.

Money Gets Locked
You can’t withdraw tax saving FD before the maturity. The maturity duration is minimum 5 years.

No Loan Facility
Unlike other fixed deposits, the tax saving FD receipt cannot be pledged for a loan.

Limit of Investment
You can invest minimum Rs 100 in a tax saving FD account. The maximum you can invest is Rs 1.5 lakh in a year.

Tax Rebate to Tax Saving FD
The invested amount of tax saving Fixed deposit is eligible for the tax deduction under section 80C.
The interest earned from the tax saving FD is taxable. The interest would be added in your taxable income for the calculation of tax.
In a joint tax saving FD account, the tax benefit is available only to the first account holder.

TDS is Deducted From the Interest Part
The tax on interest part is deducted at source every year. Like any other FD, the bank will deduct TDS at the end of every financial year.
If you have given the PAN, the TDS would be at the rate of 10% else it would be 20%.
If your total income is below the tax free limit, or you think that bank has deducted excess TDS, you can get a refund by filing income tax return.
You can also avoid the TDS by submitting the form 15H/15G to the bank at the beginning of every financial year.
The bank gives the Form 16A as the certificate of TDS deduction. This form can be used to claim income tax refund.

Why Should I Invest in Tax Saving Fixed Deposit
Tax saving fixed Deposit is the easiest tax saving method. Except cooperative and rural banks almost all the banks open tax saving FD. Some banks give high interest rate on tax saving FD. The return in tax saving FD may be greater than any other fixed return tax saving investments. Senior citizens get a higher interest rate on tax saving FD. Among all the fixed return tax saving investments, tax saving FD has a minimum lock in period. If your total income plus interest of FD is below the tax-free limit, you need not to pay any tax.

The Negative Points of Tax Saving FD
The ‘ease’ is the best thing of the fixed deposit. But it has some shortcomings as well.

The biggest negative point is the tax on interest. There are other tax saving investments which are not taxable at any point.
Another negative thing is the Tax deduction at source. If you forget to fill the form 15G/15H, the bank will deduct the tax itself. It is a hassle for you. As you would be required to wait for the income tax refund. For the people in higher tax slab, tax on interest may be 20% or 30%.
The lock in period of tax saving fixed deposit is 5 years, which is greater than ELSS lock in period.

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