Fixed Deposits (FD schemes) are among India’s most sought-after investment products because they are safe, hassle-free, and offer assured returns. On top of the above advantages, they enjoy a gigantic additional advantage — tax-saving under Section 80C of the Income Tax Act. Tax-saving FD schemes give a person a chance to cut down the taxable income and save money. This article has everything that you must know regarding tax savings on FD schemes as it involves calculation with some of the concepts such as an FD calculator monthly payment in order to have a better understanding of the money involved.
FD Schemes and Tax-Saving Options
Tax-saving FD scheme is formulated to enable the investor to save taxes, earn an assured rate of return. Investments in such instruments are eligible to be deducted under Section 80C. The section provides for tax deduction of up to ₹1.5 lakh from tax payable on investment in specific financial instruments such as tax-saving fixed deposits.
But let us not forget that not all FD schemes are deductible under Section 80C. Fixed deposits with a five-year lock-in period are singled out for such relief. Normal FD schemes, which provide the facility of premature withdrawal, are not so eligible.
Eligibility and Features of Tax-Saving FD Schemes
Under tax-saving FD schemes for tax deductions under Section 80C, the important features and terms of eligibility that an investor needs to know are:
1. Lock-in Period: Tax-saving FD has a lock-in period of five years. You cannot withdraw the amount of principal or even close the FD prematurely before this period.
2. Investment Limit: You can invest between ₹1.5 lakh or less in one year towards Section 80C tax deduction. You cannot claim investment above ₹1.5 lakh.
3. Interest Income: Even though you save tax payable by investing in such schemes, interest earned on tax-saving FDs is taxable. Bank deducts TDS (Tax Deducted at Source) if interest on such FDs earned exceeds ₹40,000 per financial year (₹50,000 for senior citizens).
4. No Loan Against Deposit: You cannot take a loan against your tax-saving fixed deposit during lock-in.
5. Facility of nomination: Tax-saving FDs provide the facility of nominating a nominee. A joint account, however, must be in the name of one person for tax benefits.
As tax-saving FD schemes are locked-in for a lock-in period, information regarding the rough interest income would assist the investor to pre-plan his finances. FD calculators are used for this, as they allow one to compute his estimated return on the tenure of the deposit.
Tax Implications
The only benefit is the deduction under Section 80C for tax purposes. Since interest earnings are taxable, one has to weigh the tax on interest-bearing income.
Points to Keep in Mind
– Rate of Interest Change: Rates of interest by schemes of FD differ with banks. Investors need to compare the various providers so that they receive the best return.
– Lock-in Period: Your liquidity requirements would have to be extremely well addressed as withdrawal is not allowed during the initial phase.
– Tax Planning: Even tax-saving FD plans offer tax deductions under Section 80C, the interest income can still contribute to your tax outgo. Plan accordingly.
– Market Risks: Fixed deposits under 80C are considered secure investments but may fail to match inflation rates vis-à-vis market-related savings such as mutual funds or equities.
Disclaimer
Investors need to weigh the pros and cons of investing in FD schemes vis-à-vis other funds. It is more advisable to have prior knowledge about personal requirements and seek advice from a certified financial planner in order to create proper knowledge of tax-saving schemes of the Indian financial system.
Summary:
FD schemes for tax savings yield two benefits: financial returns in terms of fixed interest and tax deduction under Section 80C.
By investing in a five-year fixed deposit, an individual can lower his/her taxable income by as much as ₹1.5 lakh per annum. Although the initial investment one makes is under Section 80C, the interest received on the FD is subject to tax. With an fd calculator monthly payout option, investors can calculate payout monthly and maturity value with respect to interest rates. You need to look for certain aspects like lock-in period, interest income tax, and liquidity requirement before investing money in the schemes. Although the schemes are a safe investment with guaranteed returns, each investor needs to think about whether FD schemes are suitable according to their financial objectives or not.
