11 Things to Know about a Tax Saving Fixed Deposit
By Anupama Deshpande | June 04, 2019

If you are looking for an easy to invest and safe avenue for tax saving then a Tax Saving fixed deposit could be one of the options. Banks and post offices offer Tax Saving Fixed Deposit. You can invest in Tax Saving Fixed Deposit and claim a tax deduction and save income tax.

Before opening a Tax Saving Fixed Deposit, you should carefully go through 11 Things to Know about a Tax Saving Fixed Deposit which are outlined below:

Also read Alternative Options to Save Tax Under Setion 80C

Tax Saving Fixed Deposit is a fixed deposit in which you can claim tax deduction of upto Rs 1.5 lakhs per year under section 80C of the Indian Income Tax Act, 1961. It has a Lock-in period of 5 years. It can be opened with any bank or post office in India.

Only Individuals and HUFs can open a tax- saving fixed deposit schemes. Other types of entities are not eligible for it.

Suggested reading Tax Saving Fixed Deposit Interest Rates of Top Banks

The minimum amount of an FD varies from bank to bank as per their terms and conditions. Many banks allow investment of as low as Rs 100 also, however, maximum amount that you can claim as a tax deduction can be Rs 1.5 lakhs per financial year. Tax Saving FD allows only a one-time lump sum deposit.

is a period during which the invested amount cannot be withdrawn by the investor. Tax Saving Fixed Deposit has a lock-in period of 5 years.

Loan against Tax Saving Fixed Deposit cannot be extended by the banks.

In case of simple FD, you can withdraw the amount prematurely also but after paying a penalty which differs from bank to bank. While in case of Tax Saving Fixed Deposit, pre-mature withdrawal of Tax Saving Fixed Deposit is strictly not allowed.

Suggested reading Why to Invest in Tax Saver FD?

Fixed deposit account in post offices are eligible for transfer from one post-office branch to another. A tax-saving FD can also be transferred from one bank branch to another.

An individual can open tax saving fixed deposit in 'Single Mode' or 'Joint Holding Mode'. In case you open it as a joint holding account, the tax benefit can be claimed by the first account holder only.

Interest earned on a fixed deposit is taxable and tax is levied according to the tax bracket of a person. TDS is applicable in case of all FDs hence it is applicable in case of Tax Saving Fixed Deposits as well.

There are 2 options, one is that the interest on the deposited amount can be paid out on monthly/ quarterly basis and the other is the interest earned can be re-invested and can be taken at the time of maturity along with the principal amount.

Suggested reading How to Avoid TDS on Tax Saving FDs?

Other than Tax Saving FDs, there are other tax savings investment options available for investors which are ELSS Tax Saving Mutual Funds, Public Provident Fund (PPF), National Pension System (NPS) and National Savings Certificate (NSC).