Do fixed deposits (FDs) help save on income tax?
FDs are of two types: some are normal FDs while others act as tax-saving instruments. However, income tax has to be paid on interest income accrued on both types of FDs.
Unlike other FDs, the lock-in period of tax saving fixed deposits is five years. Only individuals and HUFs (Hindu undivided family) can invest in the tax-saving FD scheme. One of the major differences between normal FDs and tax-saving FDs is that the former can be redeemed before maturity, while the latter can't be redeemed before five years.
Under the section 80C of the income tax (I-T) Act, you can claim deduction for investments up to Rs. 1.50 lakh on tax-saving FDs. The amount so invested is meant to be deducted from the gross total income to arrive at the taxable income.
If you decide to invest your money in FDs, here are the rates of interest that an investment of less than Rs 1 crore will fetch with State Bank of India (SBI), ICICI Bank, HDFC Bank, Punjab National Bank (PNB), and Kotak Mahindra Bank:
|Bank name||Tenure||Rate of interest||Senior citizens|
|ICICI Bank||1 year to 389 days||6.60%||7.10%|
|HDFC Bank||1 year||6.75%||7.25%|
|Kotak Mahindra Bank||365 Days to 389 Days||6.75%||7.25%|