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Know all about tax-saving fixed deposits

Fixed deposits that save your money on taxes are similar to ordinary FDs, with the distinction that they have a five-year lock-in duration and are exempt from taxes under Internal Revenue Code Section 80C. To fully comprehend it, keep reading

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Zainab Ashraf
10 May 2023
Know all about tax-saving fixed deposits

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New Delhi: Tax-saving fixed deposits, as the name implies, enable investors to take advantage of tax savings under Section 80C of the Income Tax Act, 1961 as long as their investments do not exceed a certain threshold of 1,50,000 rupees, investors under the scheme are eligible for a tax deduction.

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Banks and non-banking financial companies (NBFCs) offer the option of investing, and the investor can do so with fixed interest rates and little risk. As the maturity amount is transferred directly to the bank accounts, Tax-saving fixed deposits are comparable to normal fixed deposits offered by banks.

How do these FDs work?

An upfront payment must be made by the investor to the financier for a predetermined period of time. Up to the moment of maturity, the investment is protected by a fixed interest rate set by the Central Bank and is unaffected by market changes. Fixed deposits are ideal and are thought to be quite safe and secure.

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Both “individual” and “joint” openings of these fixed deposits are permitted. However, in the case of joint fixed deposits, only the primary investor is eligible for a tax deduction. There is a nomination facility available for various types of fixed deposits, however, it is not permitted if the fixed deposit is held in the name of a minor.

Who should invest in these FDs?

Investors nearing retirement or are in the senior citizens’ age group have a bigger motivation to invest in the program, even if it is advantageous for all age groups that want to invest in and earn higher returns for the unknown future.

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For the scheme, the banks charge senior citizens higher interest rates than they do for other investors. On the interest gained from deposits, they may also claim a larger tax deduction of Rs 50,000 under Section 80 TTB of the Act. Under Section 80C, the other investors may make a tax deduction claim.

Key features of these FDs include:

  • The minimum amount an investor can make is Rs 1,000, and the yearly maximum deposit is Rs 1,50,000.

  • The scheme’s duration is set to be between five years and a decade.

  • FD interest is taxed, and the amount varies depending on the investor's tax rate. (normally varies between 0.4 percent and 30 percent). If the interest earned for the fiscal year exceeds Rs 10,000, financiers deduct 10 percent of TDS.

  • Tax saving fixed deposits, unlike regular fixed deposits, do not allow for early withdrawal, loans, or overdrafts.

Tax saving fixed deposits meet the same requirements as bank fixed deposits, but with the added benefit of tax savings, making it more appealing to middle-class consumers. The strategy is absolutely safe and provides a predetermined return, making it appealing to investors who wish to increase their money quickly by performing the least minimum.

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