You can get a tax benefit by investing in the tax saving FD. The FD gives you the tax deduction under section 80C of the income tax act. According to this act, your investment in certain instruments is used to reduce income tax. The amount you invest in these options is deducted from your gross income. You can claim up to ₹1.5 lakhs for tax deduction under section 80C. Tax saving FD is one of the most popular options to get a tax benefit as it is very easy to invest.
Important Features of Tax Saving FD
You can open tax saving Fixed Deposit (FD) in any of the scheduled banks. You can’t open this account in co-operative and rural banks. The 5-year term deposit from the post office is also the same product. The process of account opening is similar to normal fixed deposit.
#2. Account Open
You can open this FD individually or jointly. But the tax benefit would be available only to the first holder. A HUF can also invest in tax saving FD.
#3. Minimum Amount
The banks set the minimum amount for these FDs. The minimum amount in the SBI is ₹1000. Whereas it is ₹10,000 in ICICI Bank.
This FD has a tenure of 5 years. Like other tax saving investments, this deposit also has a lock-in period. You can’t break this FD before 5 years
Unlike other fixed deposits, you can’t take a loan against these FD’s. The Government has restricted.
#6. Account Transfer
You can transfer tax saving FD from one post office to another.
The interest earning of this FD is taxable. The interest earning is added to the other income of the taxpayer. Thus, the tax rate is according to the income tax slab of the taxpayer.
#8. TDS Deduction
The banks deduct TDS if the interest earning is more than ₹10,000 in a year. While considering the ₹10,000 limit banks also factors other FDs in your name.
#9. Interest Rate
These FDs give same interest rate as any other fixed deposit of same tenure. Therefore the interest rate of 5-year fixed deposit is applicable for this FD as well.
#10. Senior Citizens
The senior citizens get the higher interest rate on fixed deposits. Most banks give 0.5% more interest rate to the senior citizens. Similarly, the senior citizens get 0.5% higher interest rate on tax saving FDs.