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Tax Saving FD (Fixed Deposit) – Features and Eligibility

by | Jun 19, 2024 | Income Tax | 0 comments

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Important Keyword: Fixed Deposit, HUF, Section 80C.

Tax Saving FD (Fixed Deposit) – Features and Eligibility

Fixed Deposits (FDs) are widely regarded as one of the safest investment options, appealing particularly to older generations who prioritize stability over higher-risk investments like shares and securities.

What are Tax Saving FD?

Tax Saving Fixed Deposits (FDs) are a specific type of Fixed Deposit that offers tax benefits along with interest income. Here are the key details and features of Tax Saving FDs:

Eligibility to Invest:

  • Investors: Resident individuals and Hindu Undivided Families (HUFs) are eligible to invest.
  • Types of Deposits: Can be single holder or joint holder deposits, with specific conditions for claiming tax deductions under Section 80C.

Features of Tax Saving Fixed Deposit:

  1. Minimum Investment: Starts from INR 100, and subsequent investments must be in multiples of INR 100.
  2. Maximum Deduction: Up to INR 1,50,000 per financial year can be claimed as a deduction under Section 80C of the Income Tax Act.
  3. Lock-in Period: Has a mandatory lock-in period of 5 years from the date of deposit receipt issuance.
  4. Non-Pledgeable: The deposit cannot be pledged as security for loans or other assets.
  5. Withdrawal Restrictions: Withdrawals are not allowed before maturity, making it important for investors to consider their liquidity needs.
  6. Interest Rates: Typically range between 7% to 9%, offering higher returns compared to savings accounts.
  7. Interest Payout Options: Investors can choose to receive interest payouts monthly, quarterly, or opt for reinvestment of interest into the principal amount.
  8. Tax Implications: Interest earned on these deposits is taxable as per the investor’s income tax slab. Additionally, TDS (Tax Deducted at Source) at 10% is applicable if interest exceeds INR 40,000 in a financial year.
  9. Senior Citizen Benefits: Residents aged 60 years or above can claim additional interest deduction up to INR 50,000 under Section 80TTB.
  10. Nomination Facility: Investors can nominate someone to withdraw the deposit in case of their demise, ensuring smooth succession of funds.

Considerations:

  • Long-Term Commitment: Since the funds are locked in for 5 years, investors should evaluate their financial goals and emergency fund requirements before investing.
  • Tax Efficiency: Tax Saving FDs provide immediate tax benefits by reducing taxable income, thereby lowering overall tax liability for investors.
  • Risk Factor: While FDs are considered safe, they do not offer protection against inflation, and the returns may vary based on interest rate changes.

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Official Income Tax Return filing website: https://incometaxindia.gov.in/

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