A Fixed Deposit interest rate remains the same up until its maturity. It provides depositors with higher interest returns than a savings account.
One of the most secure financial investments a person can make is Fixed Deposits.
Many banks provide Fixed Deposit accounts. It has a simple opening and maintenance process and offers the best returns. Fixed Deposits are also a fantastic investment option for tax saving. Continue reading for more information on the best Fixed Deposit plans.
What is a Tax Saving FD or Fixed Deposit?
A tax saving deposit is a financial investment one can make by visiting their bank. According to section 80C, the investments made through an FD plan are not tax deductible.
Regular FDs could provide better returns but no tax benefits. Let’s learn everything there is to know about tax saving deposits in this post, including their features, advantages, and requirements for investing.
Tax Saving FD
Fixed Deposits that qualify for a tax deduction under Section 80C of the Indian Income Tax, 1961, are known as “tax saving FDs.” Both single-holder type and joint-holder type deposits are available in these FD investments.
When you choose a joint method of holding an FD account, only the first holder is eligible for the tax benefit. The maturity period for a tax saver Fixed Deposit is five years. Under section 80C, individuals and the Hindu Undivided Family (HUF) qualify for this deduction.
Depending on your income tax level, interest from Fixed Deposits is taxable. However, by filing form 15G or 15H, you can request tax exemption, only if you qualify.
How Does a Tax Saving FD Work?
Here is a brief explanation of how a tax saving FD works:
- A tax saving Fixed Deposit has a five-year term.
- As per 80C Section of the Income Tax Act of 1961, it provides a tax deduction.
- Because there is a lock-in period, you cannot remove money from it.
- Deposit interest is subject to taxation.
- The maturity amount of a tax saving FD is credited to the savings account linked to the FD at the moment of maturity.
Benefits of a Tax Saving FD
A tax saving FD is a safe investment choice that offers many advantages. Here are a few main advantages this scheme offers: –
- High Returns
Compared to savings accounts, a tax saving Fixed Deposit provides a higher potential for interest earnings.
- Lump Sum Deposit
You can make a one-time lump sum deposit into a tax saving FD. Investing in a tax savings FD is a practical option for people with significant surplus savings.
- Minimum Lock-in Period
You must wait five years to collect tax benefits. It can, however, be extended for a longer period.
A tax saving FD is 100 per cent safe. In contrast to Mutual Funds and other market-related investment options, FD interest rates are not impacted by market volatility. The interest rates on tax saving FDs don’t change until they mature.
- Flexible Deposit Amount
FD allows you to deposit an amount as per your goal.
- Tax Benefits
Under 80C Section of the Income Tax Act of 1961, you are eligible for income tax deductions up to Rs. 1,50,000 annually for your investment in a tax saving FD.
- Flexible Interest Pay-outs
You are free to choose when to take interest payments under a tax saving FD. You can receive payments on a monthly or quarterly basis or reinvest the principle.
Documents Required for a tax saving FD (Anyone of the given below)
You’ll need the following documents to open a tax saving FD –
- Aadhaar Card
- PAN Card
- Driving Licence
- Ration Card
- Voter ID Card
- Proof of age (for senior citizens)
You may also like to read about – Types of fixed deposit
Summing it Up
You can gradually accumulate enough money by making regular investments in a tax saving FD. It provides significant profits in addition to tax advantages. A tax saving FD can be purchased from any public or private bank.
For investors who don’t want to take any risks with their money, Tax Saving Fixed Deposits are the greatest option. With tax saving Fixed Deposits, you can receive both a higher rate of return on your investment and a tax exemption. Tax Savings deposits are risk-free investments. In addition to the returns being guaranteed, your investment is completely safe. Connect with us if you need advice on the best fixed-deposit plans.