All banks offer tax-saving FDs with a fixed interest rate and also help taxpayers to save income tax.

Fixed tax savings bank deposits are popular investment options, especially for those who are risk averse yet want to save tax under section 80C of the Income Tax Act, 1961. All banks offer Fixed Tax Savings Deposits (FDs) with a fixed rate of interest and help taxpayers also to save income tax. The amount invested up to Rs 1,50,000 per fiscal year in a 5-year tax-savings FD is eligible for deduction from the total gross income and thus reduces the tax liability for that year.

The interest payment can be received monthly, quarterly, semi-annually, annually or cumulatively. The term of the deposit in tax savings FD is 5 years and deposits cannot be withdrawn before the end of the term.

When selecting the best tax saving FD from banks, the interest rate is always an important factor to look at. Many small financial banks may offer higher interest rates than the leading banks. So look for FD with maximum velocity during the period.

Tax saving FD at banks is often compared to post office NSC as both offer a fixed return over a period of 5 years and also help to save tax. The interest rate on bank FD with tax saving feature is about 6 percent while some banks offer 6.5 percent. If you are not looking for a steady income, consider investing in Post Office NSC which offers 6.8% annualized but is payable at maturity. NSC also has a lock-in period of 5 years and helps to save tax.

The maximum one is allowed to invest in the 5-year tax-saving bank for tax benefits in one financial year is Rs 1.5 lakh while in NSC there is no maximum limit but the tax benefit is up to Rs 1.5 lakh.

While investments in NSC and all other post office schemes are backed by sovereignty, the FD in banks provides deposit insurance of Rs 5 lakh per depositor per bank and therefore is the total of the amount across branches of the same bank.

Opening Bank FD is easy and simple and can be completed without going to the bank branch. One can initiate a Fixed Deposit with PAN card and Aadhaar card through the Video Banking services if provided by the bank. Alternatively, as an existing customer, you can apply for a Tax-Saving Fixed Deposit by going to the nearest branch or by submitting an application through NetBanking.

However, make sure you are aware of the taxation of interest income before investing in bank FD or NSC. Interest income from both NSC and tax savings bank FD is taxable. The amount of interest income is added to the ‘Income from other sources’ and then taxed. Because interest income is fully taxable and can barely beat inflation, real returns in bank FD or NSC are sometimes low or even negative.


This post Fixed Deposit for 5 Years of Tax Savings: Interest Rate, Taxes and Features You Should Know Before Investing was original published at “https://www.financialexpress.com/money/income-tax/5-year-tax-saver-fixed-deposit-interest-rate-taxation-and-features-to-know-before-you-invest/2464945/”

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