Fixed Deposits are a good way to save money. The interest rates and returns might not be as high as those of other savings instruments, but they are considered safer and are seen as a good way to claim tax deductions. As per the Income Tax Act 1961, provisions are available subject to conditions for taxpayers under Section 80 C to seek deductions if they have FDs.
Per the current tax laws, taxpayers holding a Fixed Deposit can avail of benefits of around Rs. 1.5 lakh a year from the gross taxable income. The following are the conditions every investor needs to follow:
- Only Indian individuals and Hindu Undivided Families can invest in these FDs
- You can invest in FDs through public or private sector banks
- You can also seek benefits if you have invested in a Post Office Term Deposit of five years
- A minimum deposit amount is specified for the FD which varies between banks. Usually, it is Rs. 100, with further investments in those multiples only.
- Tax-Saving FDs have certain conditions like a five-year lock-in period and no premature withdrawals
- You cannot draw Loans against these FDs
- Tax-Saving FDs can have joint holders, but tax benefits will go to only the first holder
How to claim the benefits?
You can claim tax benefits only during the financial year and not before that. You need to submit supporting documents and relevant forms while filing your Income Tax returns for a particular financial year.
TDS
Tax-deducted-at-source will be deducted from the income accrued on the FD interest rates if the interest in a fiscal year is more than Rs. 40,000 (Rs. 50,000 for Senior citizens). For residents who have submitted their PAN Card details, then the deduction will be 10% per year on the interest. Without a PAN Card, the bank will deduct 20% per year. You can avoid TDS and submit Form 15G, which declares your ineligibility. Senior citizens must submit Form 15H.
Special features
The FD interest rates are usually higher, and you can get the best rates by approaching banks. These Deposit Accounts offer higher interest rates than Savings Accounts. Any Indian resident, HUF, or minor can open this account. Premature withdrawal is not allowed in these deposits. Therefore, you must wait to withdraw the deposit amount before maturity. You need to pay the bank a penalty for using funds in an emergency.
You can also apply for a Loan Against a Fixed Deposit to meet all financial emergencies. Your deposit acts as the security for the Loan borrowed. Depending on the bank, at least 75% to 95% of the amount can be used as a Loan.
Conclusion
Indian individuals and senior citizens can open FDs at bank branches or through the Internet and Mobile Banking apps. However, after submitting valid age proof, seniors get higher interest rates on their deposits. The money deposited moves between the Savings and FD Accounts.
