Tax Saving FD: Here Are Benefits And Key Considerations You Must Know Before Investing

A tax-saving fixed deposit (FD) is like a special savings account that helps people save money for the future while offering tax benefits. Unlike regular FDs, these accounts come with a unique feature – they allow you to claim a deduction on your income tax under Section 80C of the Income Tax Act, 1961.
Tax Saving FD: Here Are Benefits And Key Considerations You Must Know Before Investing

Tax Saving FD: Here Are Benefits And Key Considerations You Must Know Before Investing (image source: iStock)

A tax-saving fixed deposit (FD) is like a special savings account that helps people save money for the future while offering tax benefits. Unlike regular FDs, these accounts come with a unique feature – they allow you to claim a deduction on your income tax under Section 80C of the Income Tax Act, 1961. This means you can reduce your taxable income by a maximum of Rs. 1.5 lakh per year by investing in a tax-saving FD.

Before Investing In Tax Saving FD Here Are Some Key Points You Should Know

1. Purpose and Duration
Tax-saving FDs are designed to encourage long-term savings. They come with a lock-in period of 5 years, meaning you can't withdraw the money before this duration. This lock-in period helps in promoting a disciplined approach to saving.
2. Tax Deduction
Investing in a tax-saving FD allows you to enjoy a deduction on your taxable income. You can claim up to Rs. 1.5 lakh per year, which can significantly reduce your tax liability. This deduction is available under Section 80C, making it a popular choice for tax planning.
3. Interest and Returns
While the interest earned on a tax-saving FD is taxable, it still offers attractive interest rates ranging from 5.5 per cent to 7.75 per cent. The interest earned is added to your taxable income, but the potential returns make it a worthwhile investment.

Benefits of Tax-Saving Fixed Deposits

1. Security and Low Risk
Tax-saving FDs are backed by banks and closely monitored by regulatory authorities, ensuring a high level of safety and low risk. This makes them a trustworthy option for conservative investors.
2. Higher Interest Earnings
Compared to regular savings accounts, tax-saving FDs provide higher interest rates, helping your money grow more effectively over time.
3. Convenient Deposit Options
You have the flexibility to make a one-time lump sum deposit, and the deposit amount can be adjusted based on your convenience and financial goals.
4. Tax Deductions and TDS
Besides the tax benefits, you can enjoy income tax deductions of up to Rs. 1,50,000 annually under Section 80C. However, keep in mind that the interest earned is subject to TDS (Tax Deducted at Source).
5. Premature Withdrawal Considerations
While tax-saving FDs promote long-term saving with a lock-in period, premature withdrawals may not be available. This encourages a commitment to the investment tenure, aligning to encourage long-term financial discipline.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. Times Now Digital suggests its readers/audience consult their financial advisors before making any money-related decisions.)
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