- Tax saving fixed deposits (FDs) are meant to be saved for 5 years
- One can get exemption of Rs 1.50 lakh under section 80C of I-T Act
- Only individuals and HUFs are allowed to save in tax saving FDs
As the financial year is coming to a close, income tax payers have started scurrying for making investments primarily for saving income tax as much as is allowed in the Income Tax (I-T) Act, 1961. Among various saving options (such as PPF, NSC, ELSS, life insurance premium payment, ULIPs, subscription to notified securities, senior citizens savings scheme and post saving schemes) that are allowed to be deducted from the taxable income, tax payers can deposit money in the banks in the tax-saving fixed deposits too. Under the section 80C of the income tax (I-T) Act, you can claim deduction for investments up to Rs 1.50 lakh in the tax-saving fixed deposits (FDs). The amount so invested is meant to be deducted from the gross total income to arrive at the taxable income.
Five things that you need to know about tax saving FDs
1. Unlike other fixed deposit (FD), the lock-in period of tax saving fixed deposits (FDs) is five years.
2. Only Individuals and HUFs (Hindu undivided family) can invest in the tax-saving fixed deposit (FD) scheme.
3. One of the major differences between normal fixed deposits (FDs) and tax-saving fixed deposit is that the former can be redeemed before maturity, while the latter can't be redeemed before 5 years.
4. Interest on fixed deposits will be taxable. So, while the amount of fixed deposit will be deducted from the taxable income, the income earned from the saving instrument is not deducted from the taxable income.
5. The interest rates on tax-saver term deposits depend on the duration for which the fixed deposit has been made.