A Tax-Saving FD functions like a regular Fixed Deposit but has a mandatory lock-in period of 5 years. The amount invested cannot be withdrawn before maturity, thus ensuring disciplined savings and stable returns. You can choose between cumulative and non-cumulative interest payout options, depending on your financial needs.
Features of Tax-Saving Fixed Deposits
- Tenure: Fixed 5-year lock-in period
- Tax deduction: Claim a deduction of up to ₹1.5 lakh under Section 80C
- Interest rate: Varies by bank, with options for regular or senior citizens
- Payout options: Choose between quarterly, monthly, or cumulative interest payouts
- Minimum deposit: Starts as low as ₹100
- Joint accounts: Available, but the tax benefit is only for the primary holder
How does a Tax-Saver Fixed Deposit work?
- Book the FD: Choose a bank, decide your deposit amount, and open the FD Account.
- Lock-in period selection: The investment is locked for 5 years, with no premature withdrawals allowed.
- Tax deduction: You can claim a deduction of up to ₹1.5 lakh under Section 80C after booking the FD.
- Maturity and TDS: The deposit earns a fixed interest rate, but the interest is taxable, with TDS deducted at maturity.
Documents required to invest in a Tax-Saving Fixed Deposit
To open a Tax-Saving Fixed Deposit, you need -
- Identity proof (such as a PAN or Aadhaar card)
- Address proof (utility bills or bank statement)
- Recent passport-sized photographs
Bank account details are also required for linking and managing your deposit.
Who should invest in a Tax-Saving Fixed Deposit?
- Tax-Saving FDs are ideal for salaried and self-employed individuals who wish to reduce their taxable income under Section 80C.
- It’s the perfect investment for those looking for a safe, low-risk option that guarantees capital protection, along with steady returns.
- Senior citizens and conservative investors can also benefit from the fixed returns and safety offered by these deposits.
Advantages of investing in Tax-Saving Fixed Deposits
- Tax-Saving FDs provide multiple benefits like capital safety, assured returns and tax deductions.
- With zero exposure to market volatility, these deposits offer peace of mind to risk-averse investors.
- They are easy to invest in and provide flexible interest payout options.
- You can start with a relatively low investment amount, making it accessible to all.
Things to consider before investing in Tax-Saving Fixed Deposits
- Tax-Saving FDs come with a mandatory 5-year lock-in period, and premature withdrawals are not permitted.
- The interest earned is subject to taxation and TDS, which could impact your overall returns.
Also Read: Is considering an FD as collateral a wise decision?
Conclusion
Tax-Saving FDs provide a secure and efficient way to grow your savings while benefiting from tax deductions under Section 80C. With guaranteed returns and capital protection, they are an ideal choice for risk-averse investors.
For those seeking a reliable and tax-efficient investment, consider Axis Bank's Tax-Saver FD. It offers competitive interest rates and convenient options for opening and managing the deposits, making the investment process smooth and hassle-free.
FAQs
Who is eligible for a Tax-Saving FD?
Any individual taxpayer or Hindu Undivided Family (HUF) can invest in a Tax-Saving Fixed Deposit.
What is the difference between a normal FD and a Tax-Saver FD?
A Tax-Saving FD offers tax deductions under Section 80C, while a normal FD does not.
How much FD interest is TDS free?
Interest up to ₹40,000 is TDS-free for individuals; for senior citizens, the limit is ₹50,000.
Can I withdraw a Tax-Saving FD early?
No, premature withdrawals are not allowed before the 5-year lock-in period ends.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
