The Income Tax Department has covered various investments and saving schemes under Section 80C of the Income Tax Act, 1961. This is specifically designed to benefit the middle class in India. Popular schemes covered under Section 80C are EPF, PPF, NPS, NSC, ELSS, 5-year FD and so on.
If you have availed a home loan, then the principal paid on home loan is eligible for tax deductions under Section 80C. The total deductions allowed under Section 80C is Rs 1,50,000 a year. This is a collective deduction.
Investing in a bank FD (fixed deposit) is one of the most popular and safest investments in India. There are hardly any instances of banks defaulting on FDs. Considering this, the Income Tax Department has covered 5 year FD under Section 80C, benefitting several taxpayers and also encouraging people to invest in FDs.
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A 5-year fixed deposit, also referred to as tax saving FD, is an investment covered under Section 80C of the Income Tax Act, 1961. It has a lock-in period of 5 years and earns an annual rate of interest which is much higher than that of a normal savings bank account.
Any person, who wants to save tax, can invest in a 5 year FD. This includes Indian citizens, senior citizens, NRIs and HUFs.
The minimum investment in a 5 year FD varies across banks and NBFCs. The maximum amount eligible for tax deductions under Section 80C is Rs 1.5 Lakhs a year.
Interest is compounded on a monthly, quarterly, bi-annually or annual basis. More the number of compounding higher would be the returns earned.
You can choose to receive interest either cumulatively or non-cumulatively. Under the cumulative option, the interest earned is reinvested to enhance the principal for the next compounding period.
Under the non-cumulative option, the interested earned at the end of each compounding period, is paid out to the investor.
The table below shows the top 5 tax-saving bank FD rates:
Bank |
Interest Rate |
IDFC Bank |
8.25% |
Deutsche Bank |
8.25% |
Lakshmi Vilas Bank |
7.75% |
DCB Bank |
7.75% |
Ratnakar Bank Ltd. |
7.60% |
The table below shows the top 5 tax-saving bank FD rates for senior citizens:
Bank |
Interest Rate |
IDFC Bank |
8.75% |
Deutsche Bank |
8.25% |
Lakshmi Vilas Bank |
8.35% |
DCB Bank |
8.25% |
Ratnakar Bank Ltd. |
8.10% |
As the name suggests, 5 year FDs have a lock in period of 5 years. Hence, there is no option of a premature withdrawal. The tenure ranges from 5 to 10 years.
5 year tax saving FD accounts can be opened jointly with spouse. But, the tax benefits are extended only to the primary holder, while secondary holders do not enjoy any kind of benefits.
The principal invested up to Rs 1.5 Lakhs a year, in a 5 year tax saving FD enjoys Section 80C benefits. The interest earned on tax saving FD is taxed and depends on the income tax slab you fall under. Tax deduction at source (TDS) is applicable. TDS is applicable at 10% if the interest earned exceeds Rs 40,000 a year. To avoid TDS, you must submit a self declaration and Form 15H/15G.
You have the option of nominating a beneficiary for tax saving FD account. If you die within the tenure of the 5 Year FD, then proceeds are handed over to the nominee or beneficiary.
PAN Card is mandatory to open 5 year tax saver FDs, if not, then you have to fill Form 60. Apart from this, you must produce a Government recognized ID proof and address proof.
Aadhaar Card
Valid Driving License
Valid Passport
Ration Card
Voter ID Card
In the modern World of equity and mutual funds, FDs still remain one of the most popular and preferred investment options, as they offer guaranteed returns with almost no risk. It is extremely important to follow all the requisite steps for tax planning to avoid hefty taxes.
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