Fixed deposits are one of the favourite investment instruments across all generations as it offers the safety of your capital invested and has guaranteed returns. If there is something which has an upper hand over FDs in people’s hearts in India, then it has to be tax-savings fixed deposits. Are you wondering how tax-savings fixed deposits and fixed deposits are different, then stay tuned, and will discuss the same and a lot more aspects of tax-saver fixed deposits in this article below.
What is a Tax-Saving Fixed Deposit?
Tax-savings fixed deposits are one type of fixed deposit where the maturity is not less than five years. The amount you invest in these tax-saving fds can be claimed as a deduction under section 80C of the Income Tax Act, 1961 and the maximum limit of deduction that you can avail is Rs. 1.5 lakhs as per section 80C rules and regulations.
The lock-in period for these tax-saving fixed deposits is five years which means, once you open this FD account, you cannot withdraw or close this account for at least five years. However, one thing you need to keep in mind is that the interest earned on these FDs is taxable and the usual range of interest rate on tax-saver FDs is between 5.5% and 7.75%.
Benefits of Tax-Saving Fixed Deposits
The advantage of having a tax-saving fixed deposit by your side can be many which include –
Risk-free investment option
Fixed Deposits are offered by banks mostly which are regulated by RBI and thus, the credit risk is quite low in this case. Moreover, tax-saving fds are not market-linked investment instruments and thus their valuation doesn’t get hurt by market fluctuations.
After the lock-in period of five years, you can withdraw the amount from the account anytime without any hassle. You can also extend the tenure as long as you want. So, it offers high flexibility in terms of deposits and maturity and withdrawal from the account which is not the case with most of the other tax savings instruments.
Higher interest rate
If you have idle cash in your savings account, it hardly earns 3%- 4% interest in a year while if you fixed the same amount in a 5-year fixed deposit tax-free scheme then you can not only earn a higher rate of interest than your savings account but also save taxes on the amount you invest up to a maximum of Rs. 1.5 lakhs in a financial year.
If you are looking for investment instruments for the medium term then tax-savings fds can be a great option. You just have to deposit once in this account and then leave it for 5 years at the least and then you can get a good amount of accumulated capital.
Tax Savings FD vs. Other Tax-Saving Investments
If you are wondering whether you should go for fixed deposit income tax exemption or invest in other tax-savings instruments, then here is a detailed comparison between top tax-savings instruments under section 80C and 5-year tax-saving fixed deposits.
Tax-saving FD vs. PPF
Public Provident fund or PPF also offers tax-savings investment options where you can get a deduction under the same section 80 C but it has a lock-in period of 15 years while tax-saving fds has only 5 year lock-in period. However, the interest earned on these fds is taxable while the returns on your PPF account are not and the PPF account also offers a little higher return than tax-saving fds.
Tax-saving FD vs. NSC
National savings certificates are quite similar to tax-saving Fds. They also have five year lock-in period and the returns are taxable but it beats tax-savings fds at the interest rate as it has a slightly higher interest rate offering.
Tax Savings FD vs. ELSS
ELSS or Equity-linked Savings Schemes are anytime better than tax-savings fixed deposits provided you are ready to invest in equities. ELSS offers around 12%-15% return while tax saving fd interest rates vary between 5.5% and 7.75%. Moreover, ELSS have the lowest lock-in period among all these tax-saving investment options . The returns on ELSS are partially taxable on the other hand.
Tax Savings FD vs. NPS
Finally, if you compare tax-saving FDs with National Pension System, then the tax-saving fds have an upper hand as it has a lower lock-in period as NPS has the highest that is till the age of retirement. However, the returns are higher than tax-savings fds and also partially taxable for NPS.
How to open Tax-savings Fixed Deposits Account?
For opening 5-year tax-savings fixed deposits, you can visit the bank you have your account with or you can also open it online. You need to –
- Click on Open Tax-saving FD account
- Fill out the form that pops up
- Enter the nominee details and other details as required
- Upload the required documents for KYC
- Make the transfer of the amount you want to deposit in the tax-savings FD
- You will receive a confirmation email with your registered id and you can see the deposit in your bank account application when you open it.
- You can also check the interest earned on it and the accumulated amount from time to time.
Documents required for opening Tax Saving FD
The documents you will require for opening the tax-saving FD account include –
- PAN or AADHAAR or Voter ID or Driving license or passport or any other identity proof document
- For address proof, you need to submit the Passport or utility bills of your address or bank statement with a cancelled cheque.
Why Invest with Bharti Axa?
If you are looking for a safe and great investment experience then you can start your savings & investment account with Bharti Axa. The reasons to invest with us can be any or all of the following –
- We offer an easy-to-use platform for all where you can invest without any hassle
- With our platforms, you can track all your investments and insurance and make payments and withdrawals anytime from anywhere
- Application processes with Bharti Axa are completely paperless. Whether it's account opening, closing, KYC or any other aspect.
- We offer the best security measures in the industry to protect all your data and information.
- You will get investment certificates and other documents required to claim deductions for your investments within the due time from us.
*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time’
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.
Make responsible financial decisions. Consult with your financial advisor before making any decisions on insurance purchase.