Income tax-saving bank fixed deposit (FD) is a special category of bank fixed deposit that can help you claim deductions under Section 80C of the Income Tax Act. These tax-saving bank fixed deposits have a minimum lock-in period of five years. Many banks offer online facilities to open income tax-saving fixed deposits online for the convenience of their account holders. Under Section 80C, various investments such as PPF (Public Provident Fund), insurance policies and tax-saving bank FDs are eligible for tax deductions. A taxpayer can claim maximum tax deductions of Rs. 1.5 lakh under Section 80C in a financial year.
Some tax experts have suggested the government reduce the tenure of tax-exempted fixed deposits to minimum of three years, from the current five years in Budget 2018. Others have also suggested that the interest accrued up to a certain threshold be also exempted from tax.
10 Things To Know About Income-Tax Saving Bank Fixed Deposits (FDs):
1) Interest earned in income-tax saving FDs is taxable as per the investor’s tax bracket.
2) TDS or tax deducted at source is applicable on the interest earned in tax-saving bank fixed deposits.
3) TDS becomes applicable when interest payable or reinvested on fixed deposits across all branches, per customer, exceed Rs. 10,000 in a financial year. Tax experts have said that the government should give some relief on interest accruing on tax-saving fixed deposits.
4) The minimum tenure for a term deposit offered by SBI under tax-saving scheme is five years and the maximum is 10 years, according to the bank’s website.
5) Tax-saving fixed deposits have a lock-in period of five years. No premature withdrawals or loans are allowed.
6) The minimum amount required to open an income-tax saving fixed deposit with SBI is Rs. 1,000 and the deposit should not exceed Rs. 1.5 lakh a year, according to the bank’s website
7) Interest on income tax-saving deposits is payable on a monthly or quarterly basis. The interest amount earned can be also reinvested, if the investor wants so.
8) In case of joint accounts only the first holder shall be eligible for deduction from income under Section 80C of Income Tax Act.
9) Interest rates offered on tax-saving fixed deposits by SBI, ICICI Bank and HDFC Bank, as shared by the banks on their websites.
Banks Minimum Tenure Interest Rate For General Public For Senior Citizens
SBI 5 years 6% 6.50%
ICICI Bank 5 years 6.50% 7%
HDFC Bank 5 years 6% 6.50%
SBI, for example, pays the same interest rate on income-tax saving deposits as that of normal fixed deposits. SBI currently pays an interest rate of 6 per cent on normal fixed deposits or term deposits for maturity between 5 years and 10 years. Senior citizens get a higher interest rate of 6.50 per cent.
10) Nomination facilities are available in case of income tax-saving fixed deposits.