Tax saving fixed deposits: Dual benefit of tax saving with assured interest

An individual or HUF who has opted for the old income tax rule can invest in Tax saver fixed deposits of banks, not exceeding the aggregate limit of Rs.150000.00 u/s 80 (C) of IT in a financial year is eligible for tax relief. The ‘deposit’ can be opened in a single name or joint names of an adult with a minor or in the joint names of two adults, payable to either or survivor. The joint account cannot be opened for more than two people. In the case of joint accounts, only the first-named person in the ‘Tax Saver Deposit’ can claim the tax rebate.

A person can deposit money in tax saver FD’s through any public or private sector bank except for co-operative and rural banks. Investment in Post Office Time Deposit of 5 years also qualifies for deduction under section 80 (C) of the Income Tax Act, 1961.

Tax Rule: Exempt Taxable Exempt (ETE). The first character represents the Investment stage, Second Character represents earning (income on the investment) stage and the third Character represents the redemption (withdrawal) stage. The interest received on tax saver deposits is accounted as interest income of the depositor, and tax on the interest paid is deducted at source, as per the investor’s tax bracket.

Minimum Amount of deposit: The FD can be placed with a minimum amount which varies from bank to bank. Some banks accept a minimum of Rs.100 and in multiples of Rs.100 thereof for these types of deposits. However, many banks accept minimum Rs.1000 and multiples thereof or Rs.10000 and multiples thereof, etc.

Tenure of the deposit: Banks accept Tax Saver deposits for a minimum period of 5 years.

Periodicity of interest payment: The interest on deposits is payable on either a monthly/quarterly basis or can be reinvested till the maturity of the deposit.

Interest Rate: The interest rate offered to tax saver deposits varies from bank to bank and post office. The latest prevailing rate of interest of the concerned bank for 5 years as on the date of each deposit will be applicable. Most of the banks offer additional interest (generally of 0.50%) to Senior citizens on tax saver deposits. Click here to know the interest on deposits by various banks. Individuals can avoid TDS deduction on the interest earned by submitting Form 15G (or Form 15H for senior citizens) to the bank. Senior citizens can claim a deduction of Rs 50,000 on the interest earned from deposits as per section 80TTB.

Lock-in period: These deposits have a lock-in period of 5 years. No auto-renewal facility. Premature withdrawals and loans against these FDs are not allowed.

Nomination facility: A nomination facility is available for tax saver deposits.

Premature closure: Allowed only in case of death of primary account holder.

Advantage of the tax saver deposits: Advantage of Tax saver deposits: Fixed deposits are deemed as one of the safest savings options out there that offer capital protection and growth without falling victim to market highs and lows.

The disadvantage of the tax saver deposits: The disadvantage of a tax saver deposit is that it can neither be closed prematurely nor a loan can be availed against it.  This ‘deposit’ cannot be offered as collateral security for any advance.

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