Your guide to tax-saving Fixed Deposits: Benefits, rates, and how to invest wisely

If you're looking for a safe investment option that offers good returns, risk-free investment, and income tax savings, Fixed Deposits (FDs) are a great choice. While you can open an FD anytime and anywhere, planning strategically and availing tax benefits on good returns offers double the advantage. Tax Saving FDs with a 5-year lock-in period come with significant benefits. Let's explore why this scheme is excellent.

Why is a Tax Saving FD Scheme a good investment?

As the name suggests, it's tax-saving, meaning you get income tax benefits. The returns earned during the 5-year lock-in period are tax-free. However, only interest up to Rs 40,000 per year is tax-free. You'll receive tax benefits under Section 80C of the Income Tax Act 1961. Investments up to Rs 1,50,000 per financial year are entirely tax-free. There's no risk involved as Fixed Deposits are backed by a government guarantee. You can open an FD with any government or private bank. The post office also offers the facility to open Tax Saving FDs.

FD Interest Rates

• 1. Bank of Baroda: 6.50%
• 2. SBI: 6.50%
• 3. PNB: 6.35%-6.50%
• 4. Canara Bank: 6.70%
• 5. Union Bank: 6.50%
• 6. Indian Overseas Bank: 6.50%
• 7. Post Office TD: 6.9% to 7.5%
• 8. HDFC Bank: 7.00%
• 9. ICICI Bank: 7.25%
• 10. Axis Bank: 7.00%
• 11. IndusInd Bank: 7.25%
• 12. Kotak Bank: 6.20%
• 13. YES Bank: 7.25%
• 14. DCB Bank: 7.40%
• 15. RBL Bank: 7.10%
• 16. IDFC Bank: 7.00%

Note: Senior citizens receive 50 basis points higher interest on Tax Saving FDs compared to regular investors. This applies to most banks.

Lock-in period 

Tax Saving FD schemes have a 5-year tenure. Your money remains locked in for these 60 months. There's no option to withdraw money before the maturity period of 5 years. In case of the FD holder's demise, the nominee can withdraw the money before maturity.

Saving on taxes

No tax is levied on Tax Saving FDs. However, if the interest earned on the invested amount exceeds Rs 40,000 in a year, tax will be applicable. For senior citizens, the exemption limit is up to Rs 50,000. The bank will deduct TDS before paying the remaining amount upon maturity.

Benefits 

1. Tax deduction under Section 80C of the Income Tax Act

2. Exemption on investments up to Rs 1.50 lakh per year

3. Fixed interest rate for 5 years, no risk

Nomination Facility

• 1. 0.50% higher interest for senior citizens
• 2. No option to break the FD before maturity or for auto-renewal

Required documents 

• 1. Identity Proof (Aadhaar Card, PAN, Driving License, Passport)
• 2. Address Proof (Aadhaar Card, Utility Bill, Ration Card, Voter ID Card, Driving License, Passport)
• 3. Signature Proof (Passport or Driving License)
• 4. 2 Passport Size Photos

Also read: 5 common mistakes you must avoid when planning your retirement

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