Fixed deposits are very popular investment instruments for investors looking for guaranteed returns. You can invest any amount that you want to, choose a deposit term as per your suitability and the fixed deposit scheme would give you guaranteed interest based on the amount that you deposit and the deposit term. Thus, with fixed deposits, you can be sure of the maturity amount which you would get when the term of the deposit comes to an end.
While fixed deposits are a good, risk-free investment avenue, they also help you in saving taxes. Want to know how? Here’s how –
- Under Section 80C
If you invest in a fixed deposit scheme which has a minimum term of 5 years, the amount that you invest can be claimed as a deduction under the provisions of Section 80C of the Income Tax Act. You can claim a maximum deduction of up to INR 1.5 lakhs under this section by investing in 5-year fixed deposits.
- Under Section 80TTB
If you are a senior citizen, the interest that you earn from your fixed deposit schemes would be allowed as a tax-free income. You can avail exemption on up to INR 50,000 earned as interest on your fixed deposit, savings accounts or post office deposits.
These two sections help you save tax on your fixed deposits. While Section 80C saves tax on the amount invested, Section 80TTB saves taxes on the interest generated by the fixed deposit.
Moreover, if you submit Form 15G or Form 15H to the financial institution wherein you have a fixed deposit scheme, the TDS which is deducted from the interest of the fixed deposit would not be deducted and you would be paid the full maturity amount when the deposit tenure comes to an end.
Points to remember
Though fixed deposits help in saving tax, here are some points which should be kept in mind –
- The interest earned on fixed deposit schemes is taxable if you are below 60 years of age
- Section 80TTB is applicable only for senior citizens. Normal individuals would have to pay tax on the interest earned from their fixed deposit investment. Even the five-year fixed deposit scheme wherein the investment is allowed as a deduction under Section 80C would attract tax on the returns which it generates.
- If you withdraw the five year fixed deposit before the completion of the deposit tenure, the tax benefit which was allowed under Section 80C would be reversed. In such cases, the amount of your fixed deposit would be added back to your taxable income and it would be taxed in your hands.
So, understand how fixed deposits give you a tax advantage and invest in a fixed deposit scheme if you are looking for an investment avenue with promised returns. You can start investing in a fixed deposit scheme with as low as INR 100 or INR 1000 depending on the financial institution you are choosing. Both banks and non-banking financial companies offer fixed deposit schemes and you should compare the interest rates to choose a scheme offering the highest returns.
