Tax Saving Fixed Deposits are those deposits, by investing in which you can get deduction under section 80C of the Income Tax Act, 1961. Any investor can claim a deduction of a maximum of Rs.1,50,000 by investing in such tax saver fixed deposits.
Some of the points to be noted in this regard are as follows:
- Only Individuals and Hindu Undivided Families (HUFs) can invest in tax saving FD scheme.
- Interest earned on these is taxable under Income from Other Sources
- FD can be placed with a minimum amount which varies from bank to bank.
- These deposits have a lock-in period of 5 years. Premature withdrawals and loan against these FD’s are not allowed.
- A person can invest in these 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.
- Post Office Fixed deposit can be transferred from one post office to another.
- One can hold these FD’s either in ‘Single’ or ‘Joint’ mode of holding. In the case the mode of holding is joint, the tax benefit is available only to the first holder.
- The interest earned is taxable as per the investor’s tax bracket and therefore, TDS is applicable. The interest on deposits is payable on either monthly/quarterly basis or can be reinvested. A person 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 deduction of Rs 50,000 on the interest earned from deposits as per the newly inserted section 80TTB.
- If any amount, including interest accrued thereon, is withdrawn by the assessee from his account (Psot Office Deposit scheme and Senior citizens savings scheme), before the expiry of the period of five years from the date of its deposit, the amount so withdrawn shall be deemed to be the income (except income declared under other sources) of the assessee of the previous year in which the amount is withdrawn and shall be liable to tax in the assessment year relevant to such previous year.