A fixed deposit account comes in numerous forms to help individuals and entities to save funds for their future. The general FD accounts allow you to choose the tenure of the account based on your convenience. In addition to the general FD accounts, many banks offer a five-year FD scheme that is meant for tax saving.
One can claim an income tax deduction by investing money in a five-year FD scheme under Section 80C of the Income Tax Act, 1961. The features, benefits, and terms associated with this type of account may not be completely the same as the normal FD accounts. There are a number of things you need to know about such FD accounts to make use of the benefit.
Here’s everything you need to know.
Latest Update
RBI has announced a new rule applicable to unclaimed, matured FD accounts. That is the funds in an unclaimed, matured FD account will attract an interest rate as applicable to the savings account or the contracted rate of the matured FD, whichever is lower.
What is a Tax-Saving FD
A tax-saving fixed deposit (FD) account is a type of fixed deposit account that offers a tax deduction under Section 80C of the Income Tax Act, 1961. Any investor can claim a deduction of a maximum of Rs.1.5 lakh per annum by investing in a tax-saving fixed deposit account. Some of its features are:
- A lock-in period of 5 years
- Interest earned is taxable
- The rate of interest ranges from 5.5% – 7.75%
Benefits of Tax-Saving Fixed Deposits
A fixed deposit account is a financial tool that has enjoyed the iron-clad trust of the general population over the decades when it comes to savings. Since it is a bank-based investment product closely monitored by the RBI, investors are assured of its safe and low-risk nature. The money deposited is also easily redeemable with interest upon maturity. Some of the benefits of FDs are:
- FDs have a higher interest-earning potential than savings accounts.
- FDs allow only a one-time lump sum deposit.
- Interest earned on fixed deposits is subject to TDS.
- Minimum tenure for receiving tax benefits is five years. However, it can be extended for a longer tenure.
- FDs offer flexibility in the deposit amount based on the investor’s convenience.
- Investors can get income tax deductions up to Rs.1,50,000 per annum under Section 80C of the Income Tax Act, 1961.
- Premature withdrawal may not be available.
Comparison With Other Tax-Saving Investments
Besides FD, there are many other tax-saving investment options that help you build your wealth, such as ELSS tax-saving mutual funds, PPF, and NSC. Fixed deposits are deemed one of the safest savings options out there that offer capital protection and growth without falling victim to market highs and lows. However, the returns from this scheme are taxed.
This is where ELSS stands out with its dual-benefit—its returns are generally higher and tax-free. This, coupled with a mere lock-in period of 3 years, is all the more reason for you to invest in ELSS now.
| Investment Type | Returns | Lock-in Period | Tax on Returns |
| 5-Year Bank Fixed Deposit | 5% to 7% | 5 years | Yes |
| Public Provident Fund (PPF) | 7% to 8% | 15 years | No |
| National Savings Certificate (NSC) | 6% to 8% | 5 years | Yes |
| National Pension System (NPS) | 8% to 10% | Till Retirement | Partially Taxable |
| ELSS Funds | 12% to 15% | 3 years | Partially Taxable |
Documents Required for Tax Saving FD
- Identity Proof: Aadhaar, PAN, Voter ID, Driving License, Passport, Senior Citizen card, etc.
- Address Proof: Passport, Telephone/Electricity Bill, Bank Statement with Cheque, etc.
Why Invest in ELSS with Easytax
- Easy to invest Invest in hand-picked best-performing mutual funds
- Easy to track Track/monitor your investments 24/7
- Easy to withdraw Withdraw anytime in 1-click with no paperwork needed
- Paperless Sign up, complete your KYC, and invest online in 10 minutes
- Bank-graded security Data security is our priority, and all your investments are completely secure
- Investment proof for HR Get your 80C investment proof instantly and submit it to HR.