Fixed Deposits: Are they tax-free? Know FAQs on tax saving

The benefits of a fixed deposit extend beyond generous interest rates and stability. If used smartly, your fixed deposit could be a valuable tax-saving instrument in your toolkit. Section 80C of the Income Tax Act allows you to claim deductions of up to Rs.1.5 lakh in a financial year when you invest in a 5-year tax-saver FD.


As you consider opening such a fixed deposit account, there may be multiple questions running through your mind regarding eligibility, interest rates, investment limits and maximum tax benefits. To help you manage your finances and your FD investment better, here are all your questions answered.


Who can invest in a tax-saver FD?

HUFs and individuals including senior citizens can invest in a tax-saver FD. A minor can also invest in a tax saver FD jointly with an adult.


What is the minimum amount required to open a tax-saver FD?

The minimum amount varies from one financial institution to another but can be as low as Rs.100.


What are the risks involved with investing in a tax-saving FD?

Tax-saver FDs keep your finances in a risk-free environment. Your finances are safe and secure as long as you choose one with a good credit rating.


How to open a tax-saving FD?

Barring rural and co-operative banks, you can invest in a tax-saving FD at a public or private sector bank of your choice. You can also open it at a Post Office as a Post Office Time Deposit. Accounts can be opened either at a branch or online.


Is there a maximum investment limit?

Per financial year, you can invest Rs.1.5 lakh in a tax-saver fixed deposit.


How much tax will you save?

Section 80C specifies that a principal amount of up to Rs.1.5 lakh is exempt from taxation.


Is the interest taxable?

Yes, interest earned is taxable. Also, as per the Interim Budget 2019, TDS is applicable only for interest earned above Rs.40,000. Further, if your taxable income (interest included) is less than or equal to Rs.5 lakh, then Section 87A makes it possible for you to get a full tax rebate when filing your tax returns.


Is there a lock-in period and are premature withdrawals allowed?

Tax-saver FDs come with a 5-year lock-in period and premature withdrawals are not allowed.


What happens to your finances when the FD matures?

Your money is transferred to your bank account on maturity.


What are the FD interest rates available?

The interest rates differ from one issuer to the next but are generally in the 6%–8% range.


Are there any benefits for senior citizens?

Senior citizens profit from higher FD interest rates. Additionally, as per Section 80TTB a deduction of Rs.50,000 can be claimed on interest earned via tax-saving fixed deposits, and TDS is only applicable once the interest income in year crosses Rs.50,000.


Can post office deposits help save tax?

Yes. You can claim deductions up to Rs.1.5 lakh through a Post Office Time Deposit.


Can you hold a joint account?

A joint account can be held. However, in this case only the primary holder can avail the tax deductions.


As you can see from the FAQs, 5-year tax-saver FDs bring you a range of benefits. However, one significant drawback of these FDs is that you cannot use them as collateral to get quick finances. If this is an important feature for you then a compelling alternative is the Bajaj Finance Fixed Deposit. This FD not only gives you timely liquidity but also offers you high ROI via lucrative interest rates that run up to 9.10%.


Further, if you want to avoid long lock-in periods, you can invest for anywhere between 12 and 60 months. The Bajaj Finance FD is also armed with ICRA’s MAAA rating and CRISIL’s FAAA rating. This ensures that your finances are safe and secure. This FD requires just Rs.25,000 as an initial investment and provides you with the tools to monitor and forecast your earnings, be it the online account management facility or the Bajaj Finance FD Interest Calculator. Invest in this vehicle by visiting the nearest Bajaj Finance branch or by filling up this simple application form online.