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5 Benefits of a Tax-saving Fixed Deposit
Posted on Sunday, February 20th, 2022 | By IndusInd Bank
Looking for a secure place to park your excess funds and earn healthy returns? If yes, fixed deposits (FD) are the perfect investment avenue for you! In the long term, FDs have the potential to generate high returns through the benefit of compounding. What’s more, FDs are also easy to set up and manage. With IndusInd Bank, you can open a fixed deposit online from the comfort of your home- no paperwork required!
But did you know that along with being a simple, risk-free investment option, FDs can also offer you tax benefits? That’s right! Such FDs are known as tax-saving FDs, and they allow you to avail of tax deductions under section 80C of the Income Tax Act, 1961.
Let us explore the 5 key benefits of investing in tax-saving FDs.
#1 Low Minimum Deposit Requirement
Unlike many other investment instruments, you do not need to accumulate a substantial amount to start a fixed deposit. With IndusInd Bank, you can open a tax-saving FD with an amount as low as Rs. 10,000. However, the maximum investment you can make in a tax-saving FD is Rs. 1.5 lakh per financial year.
#2 Assured Returns
Other tax-saving instruments such as ELSS mutual funds are risky, as they are affected by market fluctuations. But with tax-saving FDs, you can earn guaranteed returns. Once you lock your FD at a certain interest rate, fixed deposits will give you returns at the same rate even after the bank revises its rates.
#3 Short Lock-in Period
Tax-saving FDs have a lock-in period of 5 years, which means that you cannot withdraw money before 5 years from the date of booking. This lock-in period is much shorter than that of other tax-saving instruments, such as PPF accounts, which have a lock-in period of 15 years.
#4 Tax Benefits Under Section 80C
Under Section 80 C of the Income Tax Act, Indian residents or Hindu Undivided Families (HUFs) can claim tax deductions of up to Rs 1.5 lakh invested in a tax-saving fixed deposit.
So, when you file your ITR, you can deduct the amount invested in your tax-saving FD from your taxable income, as long as it is less than or equal to Rs. 1.5 lakh. You can claim this deduction only for the financial year you create the FD.
The actual amount of tax you will save depends on your tax bracket. Therefore, if you are in the highest tax bracket (30%) and deposit Rs 1.5 lakh in a tax-saving FD, you can save up to Rs. 45,000 in taxes. Additionally, you will have to pay taxes on your interest income, and your bank will deduct TDS accordingly.
#5 Joint Holding and Nomination Facility
You can open a tax-saving fixed deposit jointly. However, only the first holder can claim tax benefits.
With tax-saving FDs, you also have the option to nominate a person to take over the account proceeds on your behalf. The nomination facility is available for both solely held and jointly held accounts.
To Sum Up
Tax-saving FDs are a boon for risk-averse investors. They have a low deposit requirement, are less risky than other tax-saving options such as ELSS, and have a shorter lock-in period than PPF accounts. Apart from that, they offer all the benefits of a regular FD, such as simplicity and assured returns.
So, take the first step towards saving taxes and open a fixed deposit online with IndusInd Bank today. You can open an online FD with us even if you are not an existing bank account holder.
Visit our website to learn about our FD interest rates and explore our numerous attractive offerings.
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own 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 taking any financial decisions based on the contents and information.
