What is Tax Saving Fixed Deposit (FD)

Key Features of Tax Saver FD

You can get a tax exemption of a maximum of Rs.1.5 lakh.

1. Tenure: 5 years to 10 years
2. Interest rates available: 6.20% p.a. to 7.65% p.a. for the general public
3. Deposit range: Rs.100 to Rs.1.50 lakh p.a.

Key Benefits of Tax Saver FD

1. Tax exemptions as listed out in Section 80C of the Income Tax (IT) Act, 1961.
2. Premature withdrawal is allowed after completing 5-year lock-in period.
3. Most banks offer 0.50% hike in interest rates to senior citizens.
4. Most Tax Saving FD schemes come with an option of joint account.
5. In case of a joint account, only the primary account holder is eligible for tax benefits.
   

Top Small Finance Bank Tax Saving FD Interest Rates 

High-interest rates are offered on FDs for accounts under Rs.2 crore by small finance banks. Apply to deposits under Rs. 2 crore 

Eligibility Criteria for Tax Saving Term Deposit

1. Resident Indians
2. Individuals
3. Hindu Undivided Families (HUF)
4. You can open a tax saved FD in single and joint account.
   

Documents needed to open a Tax Saving FD account

1. Permanent Account Number (PAN) Card
2. Government-recognized ID proof:
   1. Aadhaar Card
   2. Driving Licence
   3. Passport
   4. Ration Card
   5. Voter ID Card
   6. Government-recognized address proof
   7. Proof of age (for senior citizens)
   8. 2 recent color passport-size photographs

Tax Deducted at Source (TDS) on Tax Saving FDs

As per current tax laws an individual can claim a tax deduction for investments in tax saving fixed deposits of up to Rs.1.5 lakh. The amount will be deducted from the total gross income of the individual to arrive at the taxable income. Section 80C of the Income Tax Act permits this deduction. Listed below are some criteria to be fulfilled to claim for this deduction:

1. Hindu United Families (HUF) and individuals only are eligible to invest in tax saving fixed deposit schemes.
2. The Fixed Deposit can be of the minimum amount as stipulated by the bank.
3. The tax saving fixed deposits have a 5-year lock-in period. Premature withdrawals and loans against the Fixed Deposit is not permitted.
4. Individuals may invest in these Fixed Deposits through any private or public sector banks, except co-operative and rural banks.
5. The Post Office Time Deposit of 5 years also qualifies for deductions under Section 80C of the Income Tax Act of 1961.
6. Post Office Fixed Deposits are transferable between post offices.
7. Fixed Deposits can be held either individually or jointly. In case of a joint fixed deposit the tax benefit will be given to the first holder of the Fixed Deposit.
8. Interest earned on these Fixed Deposits is taxable under the investor's tax bracket, therefore, Tax Deductible at Source (TDS) is applicable. The interest payable on the investment is either on a monthly basis or quarterly basis, this interest may be reinvested.
9. Tax Deductible Fixed Deposits have a nomination facility.
10. Banks offer slightly higher interest rates to senior citizens on these Fixed Deposits. This increased interest rate exists for Tax Saving Fixed Deposits.

How to Reduce TDS on Tax Saving Fixed Deposits

Tax Deducted at Source (TDS) is applicable to all interest income that is earned in India, including FDs. In every financial year if the income earned through interest exceeds Rs.10,000, the applicant or account holder will have to pay tax at any cost. However, if the interest earned is less than Rs.10,000, then the account holder will not have to pay tax.

1. Self-declaration - If the interest earned from FDs and the total taxable income earned during the financial year is not more than the prescribed taxable limit, please submit form 15G or 15H, whichever is applicable.
2. Which form is for whom - Form 15G is for the general public while Form 15H is for senior citizens. The applicant must be a resident of India who is 60 years or less and his/her income should not exceed the prescribed tax limit. Form 15H can only be filled by an Indian resident above 60 years of age and by an individual who falls below the prescribed tax limit.
3. Managing investments better - You can make investments in such a way that it does not exceed Rs.10,000 in one year. For example, one could invest in a 1 year FD in the month of October, in such a manner, the financial year will be split into two. As the financial year ends on 31 March, you can save TDS on your investment.
4. The second applicant waived off TDS -  If you are the first applicant in a joint FD, then TDS will be deducted from your account automatically if the interest income earned exceeds the limit. However, if you are the second applicant in a joint account, TDS is not likely to be deducted.
5. Distributing investments -  Another option that investors have is to distribute investments across various banks, instead of putting it all in one bank.
6. PAN - You need to submit your PAN details to the bank for your FD investment. If you don't submit your PAN details, banks will deduct TDS at a higher rate, which is usually 20%.
7. Late submission -  If you forget to submit the self-declaration forms and the TDS has been deducted, the Income Tax department will make a refund, if the account holder files for tax returns. However, you will have to wait until the next July and for the refund to be processed it will take another few months.

FDs still remain one among the most preferred investment options because they offer certain guaranteed returns without any financial risk element. It is very important to take all necessary steps to do tax planning and better manage your investments instead of paying hefty taxes. Other than the methods mentioned above if one makes other investments, one can claim tax exemption, and this will help reduce the tax burden on the individual to a certain extent.

Important Information About Tax Saving FD Interest Rates

As per current tax laws, if one invests in a tax saving FD, he/she can claim the invested amount up to a maximum of Rs 1.5 lakh as a deduction from his/her income. The amount invested this way is meant to be cut from gross total income to arrive at taxable income. This kind of deduction is permitted under Section 80C of the Income Tax Act. Section 80C further determines the upper limit of investment - which is currently fixed at Rs 1.5 lakh. The Tax-saving fixed deposit is one of the few gateways presently permitted for investment for one to claim a tax break according to Section 80C of the Income Tax Act.

Only Individuals and HUFs can make investments in the tax saving fixed deposit (FD) scheme. This FD can be put together with a certain minimum amount - and this amount varies from one bank to another. Fixed deposits have a lock-in time of 5 years, and withdrawals before maturity are not permitted, as are not loans against these FDs.

One can invest in these FDs via any of the public or private sector banks, but not cooperative and rural banks. An investment made in the Post Office Time Deposit for a period of 5 years also qualifies one for deduction under the same section 80(C) of the Income Tax Act, 1961. This Post Office Fixed deposit comes with the provision of being transferable from one Post office to another.