What is a Fixed Deposit for Tax Savings?


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A Fixed Deposit, or tax saving FD, is a financial investment instrument that banks and NBFCs offer. It allows you to deposit money and receive a higher interest rate than a savings account. Section 80C exempts investments made under this scheme from tax deductions. While a regular FD might offer higher returns, it does not provide tax benefits.

Let’s learn all about tax-saving fixed deposits. We will also discuss their benefits and how to invest.

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Tax Savings FD

A tax saving FD (tax-saving fixed deposit) is a type that allows an individual to claim a tax deduction according to Section 80C of Indian Income Tax, 1961. You can make these deposits through either a single holder type deposit or a joint holder type deposit.

Joint holding is not available. The maturity period for the tax saver fixed-deposit is five years. Individuals and the Hindu Undivided Family can deduct under section 80C.

What is a Tax Savings FD?

This is a brief overview of how a tax-saving FD works.

  • This is a financial arrangement offered by banks and other NBFCs. It allows you to deposit a lump sum of money over a set period or tenure.
  • A fixed deposit that is tax-saving can be held for 5 years.
  • It allows for a tax deduction according to Section 80C of 1961’s Income Tax Act.
  • You cannot withdraw from the contract before it expires.
  • Interest earned on deposits is taxable
  • The maturity amount of a tax-saving FD is credited to the savings account associated with the FD at the time it matures.

The Key Features of a Tax Savings FD

You can accumulate sufficient funds by investing in a tax-saving FD. You get tax benefits as well as good returns. These are the main features of a tax-saving FD:

  1. Exemption from Tax

You can get income tax exemption under Section 80C, IT Act, 1961, if you have a tax saving FD. This exemption can be claimed for investments up to Rs 1.5 lakh

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  1. Lock-in Period

Fixed deposits that are tax-saving have a lock-in period for five years. Over the five-year period, interest rates remain unchanged.

  1. Taxable interest

As part of the Tax Saving FD the interest earned is taxable. It is deducted at source.

  1. No premature withdrawals

Regular FDs offer loan facilities to depositors. A Tax Saving FD does not allow for premature withdrawals, overdraft (OD), and loan facilities.

  1. No Auto-Renewal Option

A Tax Saving Fixed Deposit cannot be renewed automatically.

  1. Flexible Interest Pay-outs

A tax-saving FD allows you to choose when and how much interest you receive. You can choose to receive monthly or quarterly payments or reinvest the principal amount.

  1. Other Features

Rates for Indian citizens and Hindu Undivided Familie (HUF) vary from one bank to the next. You can have a Tax Saving Fixed Deposit in either a single or joint account. Tax benefits will only be available to the account holder who holds the joint Tax Saving Fixed Deposit.

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Benefits of a Tax Savings FD

Tax saving FDs are a safe investment option with many benefits. These are just a few of the many benefits offered by this scheme:

  1. High Returns

Fixed deposits that are tax-saving have a higher potential to earn interest than savings accounts.

  1. Lump Sum Deposit

You can deposit a lump sum amount with a tax-saving FD. This is an excellent feature for those who have substantial surplus savings.

  1. Minimum Lock-in Period

Five years is the minimum term for tax benefits. It can, however, be extended for a shorter tenure.

  1. Secure

An FD that saves taxes is completely secure. Market fluctuations do not affect interest rates as with Mutual Funds or other market-related investments. The maturity date for tax-saving FD interest rates is also fixed.

  1. Flexible Deposit Maximum

Flexible deposit amounts can be offered by FDs based on investor convenience.

  1. Tax Benefits

How can you avoid tax deduction on FD?

These are some ways to avoid TDS on FDs.

  1. By submitting Form 15G/15H

The bank will not deduct TDS on interest earned if you submit Form 15G, stating that there is no taxable income. Senior citizens need to fill out Form 15H.

  1. Timing of the FD

Tax deduction can be avoided by timing your FD so that the interest earned for any given financial year is less than Rs 10,000

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  1. Splitting the FD

Tax deductions on FD can be avoided by opening one FD under your bank account and one under your HUF account. Both will be treated separately.


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