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Tax saving FD offers convenience, safety and a little liquidity too

Guest 
on 25 October 2017

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The Union Budget 2017 relieved the working class with the introduction of an increased threshold with regards to tax payment. As per the new budget, the income which exceeds the limit of INR 3 lakhs is liable for a tax deduction as compared to earlier INR 2.5 lakhs. It is a huge boost for people who have an income higher than INR 2.5 lakhs but lower than INR 3 lakhs.

However, there are many people whose salary exceeds the INR 3 lakhs mark. These people are not particularly open to paying taxes as they just lie on the border. Many individuals in this income bracket try to evade taxes. However, they do not have to do it illegally; there are legitimate ways through which they can save tax. If you are facing a similar situation, you can opt for a legitimate way too. One of the means which happens to be the most popular one is the tax saving fixed deposit.

What is Tax-Saving FD?

Know about what is TDS on Fixed deposit, an invest avenue to help you save tax. Investments made in a tax saving FD is eligible for tax deduction under Section 80C of the Income Tax Act (IT Act).

Processing of Tax-Saving FD

A process to apply for a tax-saving FD is quite easy. An investor can simply visit a financial institution, fill the form and give the cheque. Furthermore, if you are investing the funds in the same branch from which you draw the cheque, then transferring of funds will be very quick and the investment will be made within a few hours.

Depending on the staff efficiency, the transfer of funds between the same accounts would not take more than 20 minutes. So within 1 hour, you can easily walk out of the financial institution with your FD receipt. This is one way to do it; the other way is to get the procedure done online if you are familiar with net banking.

Tax-Saving FD - A safer option:

As a debt investment, tax saving FDs are way safer as compared to equity based saving schemes such as ELSS. Furthermore, even the returns on tax saving FDs are guaranteed by the lender. The tenure has to be agreed upon, and once it gets completed, you will receive your invested amount along with the added benefits.

Tax Saving FD - A better option:

Among other investment options in Debt Avenue, fixed deposits have the smallest lock in period viz., 5 years. Furthermore, it also offers flexibility with regards to interest pay-out. Many argue that National Saving Certificate (NSC) is a better option than FD. However, NSC investment comes with cumulative instruments, and thus, periodic interest pay-out is not available. Tax saving FDs in comparison to NSC and other debt investments are much better option. 

When investing in a tax saving fixed deposit, it is essential that you take a look at the rate of interest before investing. Currently, banks offer an interest rate of 6.75-6.90%. However, there are highly rated Non-Banking Financial Companies which offer a considerably higher rate of interest on FD than banks. Feel free to approach these companies.

Lastly, when you are investing in tax-saving FD, here are a few things that you must know:

  • Tax Saving Fixed Deposit is only available for the individual investor and Hindu Undivided Families (HUFs).
  • The maximum amount that you can invest in a tax saving fixed deposit is INR 1.5 lakhs.
  • Tax saving fixed deposit has a lock-in period of 5 years.
  • Premature withdrawal and facility of loan against FD are not allowed.
  • An investor can approach any public or private sector bank to invest in a tax saving FD. However, co-operative and rural banks do not qualify for the same.

These are few of the points that you must keep in mind when applying for a tax-saving fixed deposit.


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