What is Tax Saving Fixed Deposit? How Does a 5-Year Tax Saving FD Work?

Posted on Thursday, October 10th, 2024 | By IndusInd Bank

A tax-saving fixed deposit (FD) is an excellent way to earn interest while enjoying tax benefits. It is a dual-benefit investment. Are you wondering how to invest money effectively while cutting taxes? A 5-year tax saving fixed deposit could be the solution.

What is a Fixed Deposit (FD) That Saves Taxes?

The most favoured type of fixed deposit is one that offers tax exemption under Section 80C of the Income Tax Act. It has a five-year lock-in period. By investing in this FD scheme, an investor will receive a tax relief of up to ₹1.5 lakhs.

How Do Tax Saving FDs Operate?

A five-year fixed tenure applies to tax saving FDs. Section 80C of the Income Tax Act, 1961 allows for a tax deduction of up to ₹1.5 lakh, even though the interest earned on the FD amount is taxable. A 5-year tax-free fixed deposit differs from other fixed deposits as it offers a tax-saving benefit.

The Working of a Tax Saving FD

Eligibility: Individuals who are citizens of India, above 18 years of age and possess valid KYC documents can open an FD account. Deposit options can be made using a single or joint name. In the case of joint holders, the first holder gets an income tax benefit, as per Government of India guidelines.

Deposit amount: If you’re an IndusInd Bank customer, you can open a fixed deposit from ₹10,000 to ₹10 Lakhs. However, the maximum amount of deduction available is capped at ₹1,50,000.

Deposit Tenure: For tax-saving deposits, the minimum lock-in period is 60 months, but a maximum tenure of 120 months is allowed.

Interest Payment: The interest is compounded quarterly for a 5-year fixed deposit. After each quarter, the interest is credited to the accounts. To calculate your potential earnings, you can use an FD calculator.

Premature Closure: You can’t close a tax-saving FD early unless the bank agrees and five years have passed. However, it is possible to withdraw early in case the depositor dies.

The Benefits of Tax Saving FD

• Savings on Taxes: Under Section 80C of the Income Tax Act, the principal amount invested is deductible for the first holder of the FD. However, the maximum deduction is limited to ₹1,50,000 during a financial year.

• No TDS if Form 15H/15G is Filed: This FD follows TDS rules. Interest earned is taxable, but the bank will not deduct TDS if you submit Form 15H/15G and don’t owe taxes.

• Additional Interest Rate for Senior Citizens: Senior citizens receive a higher interest rate on these deposits. They receive 0.5% more from IndusInd Bank over and above the tax-saving FD rates.

• Individual Minor Accounts: Minors can also open a 5-year fixed deposit for tax exemption. These tax-saving deposits can be crucial tools for financial planning.

Also read: Tax Planning with Fixed Deposits: A Comprehensive Guide

How Do I Open a Tax Savings FD? – H2

To open a tax-saving fixed deposit with IndusInd Bank, you need your Aadhaar card, PAN card, photographs, and proof of address. Visit your chosen branch and fill out the FD application form. Specify the amount you wish to deposit and select the type of tax-saving FD. Provide any additional KYC documentation required for verification. Once processed, you’ll receive an FD receipt detailing the terms. Keep track of the maturity date for withdrawal or renewal options per your financial planning needs. You can also open an FD via the Indus web application, Indus mobile, or Indus net.

A tax saving fixed deposit offers tax benefits under Section 80C, allowing a deduction of up to ₹1.5 lakh with a 5-year lock-in period. While the interest is taxable, the principal reduces taxable income, making it a favoured tax-saving option. Looking to maximise your savings and enjoy tax benefits with a 5-year Fixed Deposit? Start your IndusInd Bank Fixed Deposit today and save on taxes while securing your financial future.

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.