A Fixed Deposit(FD) is a type of deposit account of any individual with the bank, wherein, the amount deposited by the customer is kept for a fixed tenure or period and the bank pays a fixed interest rate on the sum deposited. Fixed Deposit can not only provide you good returns but can also come to your rescue for saving taxes.
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Fixed deposit and tax deduction under section 80C
Fixed Deposits were included under exemption under Section 80 C of Income Tax 1963 in 2006. To avail FD as a tax saving option the individual is required to deposit a lump-sum amount for a particular duration. These deposits can be of two types – Single holder Deposits and Joint holder Deposits. However, the tax benefits are available for the first account holder only.
The FD that can be claimed as tax deduction under section 80C of Income tax Act shall fall under the prescribed category stated by the government. The features of such deposits are:
- A lock-in period of 5 to 10 years
- The interest earned in this FDs is taxable
- The rate of interest ranges from 5.5% – 7.75% (subject to interest rate fixed by Reserve Bank of India)
- No premature withdrawals, overdraft (OD), or loan facilities are available for a Tax Saving FD
- No auto-renewal facility for a Tax Saving Fixed Deposit
Deductions under section 80C on Tax-Saving FD
A tax saving can be used as a tool of tax deduction under Section 80C of the Income Tax Act, 1961. Any individual can claim a deduction of a maximum of Rs.1.5 lakh per annum by investing in a tax-saving fixed deposit account.
Who can avail such deduction under section 80C?
The deduction of Tax saving FDs under section 80C can be availed by individual assesses and the Hindu Undivided Family (HUF).
Documents Required for claiming section 80C deduction
- Identity Proof: Aadhaar, PAN, Voter ID, Driving License, Passport, Senior Citizen card, etc
- Address Proof: Passport, Telephone/Electricity Bill, Bank Statement with Cheque, etc
Major Banks providing Tax Saving Fixed Deposit Schemes in India
- State Bank of India
- Kotak Mahindra Bank
- HDFC Bank
- Punjab National Bank
- Axis Bank
- Bank of Baroda
- Canara Bank
- Post Offices
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