Tax-Saver Fixed Deposit

A tax-saver fixed deposit is a type of FD scheme where investors can avail of tax deductions u/s 80(C) of the Income Tax Act, 1961. As per the taxation provisions, you can claim a maximum deduction of up to Rs. 1.5 lakhs on the principal deposited into a tax-saver FD. Tax-saver FDs carry a mandatory lock-in period of 5 years and can be opened in a single or joint mode. If you’re looking for a tax-efficient 80(C) investment option to add to your portfolio, you can consider tax-saver FDs. This article outlines the features and benefits of tax-saver FDs to help you make an informed choice.

• Tax-saver FDs offer tax deductions u/s 80(C) of the Income Tax Act.
• These tax-efficient FDs have a mandatory lock-in period of 5 years and do not offer premature withdrawals, loans, or OD facilities.
• Tax-saver FDs can be opened in single or joint modes by individuals and HUFs.

Let’s have a look at some of the key features of tax-saver FDs:

• Tax deduction u/s 80(C)
  Tax-saver FDs allow you to claim tax deductions under Section 80(C) of the Income Tax Act. You can claim a maximum tax deduction of up to Rs. 1.5 lakhs annually.
  
  
• Lock-in period
  Tax-saver fixed deposit accounts have a mandatory lock-in period of 5 years.
  
  
• TDS on interest
  While the principal amount in a tax-saver FD qualifies for 80(C) deductions, TDS is applicable on the interest earned on the deposited corpus. A 10% TDS is applicable for regular investors if the annual interest exceeds Rs. 40,0000. Seniors can claim deductions of up to Rs. 50,000 on the interest earned u/s 80TTB.
  
  
• No premature withdrawals
  Tax-saver FDs do not allow premature withdrawals during the 5-year mandatory lock-in period. In other words, you cannot liquidate the deposit and access your funds once you open a tax-saver FD.
  
  
• No auto-renewal option
  Banks do not offer an auto-renewal facility for tax-saver fixed deposits. You have to manually request renewal on the maturity date if you wish to renew the FD for another 5 years.
  
  
• No loans and overdraft facility
  Unlike regular fixed deposit accounts, tax-saver FDs do not offer loans and OD facilities. In simple words, you cannot use the FD corpus as collateral to secure financing.
  
  
• Single or joint accounts
  Tax-saver FDs can be opened as single or joint accounts by individuals above 18 years of age and HUFs.

Investing in tax-saver FDs is a good option for any investor looking to build a tax-efficient portfolio. Here’s a comprehensive list of tax-saver FD benefits you can enjoy:

• High returns
  Tax-saver FDs offer better interest earnings than regular savings accounts. Therefore, you can earn higher yields than simply keeping your money idle in the savings account. If you are looking for a safe investment option, you can consider fixed deposit. They offer guaranteed returns and a fixed interest rate throughout your investment tenure.
  
  
• Capital safety
  Tax-saver FDs are 100% secured investment options. The deposited lump-sum amount earns returns at a fixed rate throughout the investment tenure. Additionally, the principal sum is protected against market fluctuations and periodic volatility.
  
  
• Tax benefits
  This is a primary benefit of a tax-saver FD. Investing in a tax-saver fixed deposit qualifies you for tax deductions u/s 80(C), allowing you to lower your overall tax liability.
  
  
• Flexible interest payouts
  These fixed deposit accounts offer flexible interest payout options. Depending on your need, you can choose from monthly or quarterly interest payments to maintain easy liquidity. Alternatively, you can choose the reinvestment option to help your corpus grow under the power of compounding. You can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 8.85% p.a.

If you have a sizable amount at hand and wish to leverage a tax-efficient investment avenue for the same, opening a tax-saver FD may be a prudent choice. To open a tax-saver FD account, you need to submit the following documents:

Identity proof documents:

You can submit any one of the following identity proof documents:

• Aadhaar Card
• PAN Card
• Passport
• Voter’s ID
• Driving license
• Government ID/Senior citizen ID

Address proof documents:

Valid address proof documents include:

• Aadhaar Card
• Passport
• Electricity bill
• Phone bill
• Gas bill
• Bank statement

Now that you know the features and benefits of tax-saver FDs, here are a few other things you should note:

• If the tax-saver FD is jointly held, the tax benefits extend only to the first account holder.
• Tax-saver FD interest rates vary from one bank to the next.
• TDS on the interest accrued can be avoided by submitting Form 15G (Form 15H for seniors) to the bank. Form 15G and 15H are self-declaration forms submitted to declare that your income is below the taxable limit, making you exempt from TDS deductions.
• You can invest in tax-saver FDs through any public or private bank except rural and cooperative banks.
• Minors can invest in tax-saver FDs jointly with adults.
• While the minimum deposit amounts for tax-saver FDs vary from one bank to the next, most start from as low as Rs. 1,000.

If you’re looking for an investment option that offers guaranteed returns, zero risks, and good tax benefits, a tax-saver FD should be your top choice. Tax-saver fixed deposits are designed to offer the same benefits as regular FDs but with the added advantage of Section 80C deductions. However, you should consider investing in a tax-saver FD only if you are comfortable with a mandatory 5-year lock-in window when you cannot make any premature withdrawals.