Fixed Deposits, commonly known as FDs, are considered one of the most popular forms of investment in India. They are regarded as a low-risk investment option, with guaranteed returns, making them an attractive option for investors. One of the advantages of investing in FDs is the tax benefits associated with them. In this article, we will explore what Fixed Deposits are, how to invest in them, and the tax benefits associated with FDs.
What is a Fixed Deposit?
A Fixed Deposit is a type of investment offered by banks and other financial institutions. It is a savings account where you can deposit a lump sum of money for a pre-determined period, which can range from a few months to several years. The interest rate on the deposit is fixed at the time of investment, and you earn interest on your deposited amount at that rate.
How to Invest in Fixed Deposits?
Investing in Fixed Deposit is a straightforward process. You can invest in Fixed Deposits through your bank like HDFC, SBI etc. or other financial institutions such as Bajaj Finserv app, Muthoot Finance etc.that offer this facility. To invest in Fixed Deposits, you need to follow these simple steps:
- Choose a bank or financial institution that suits your investment needs.
- Decide on the tenure of your FD – this can range from a few months to several years.
- Decide on the amount you want to invest in your FD.
- Submit the required documents, like your ID proof, address proof, and PAN card, to open the FD account.
- You can choose either to receive periodic payouts of the interest earned or opt for the interest to be reinvested.
FD Tax Benefits:
1. Tax Deduction under Section 80C – An individual can claim a deduction of up to ₹1,50,000 under Section 80C of the Income Tax Act. FDs with a tenure of 5 years or more are eligible for this deduction. This means that an individual can invest in FDs and claim the tax deduction on the amount invested.
2. Tax Deduction under Section 80TTB – Senior citizens can claim a deduction of up to ₹50,000 on the interest earned on FDs under Section 80TTB of the Income Tax Act. This deduction is applicable only for senior citizens and is not available to individuals below the age of 60.
3. No TDS on Post Office FDs – Post Office FDs are tax-free under Section 10(15)(i) of the Income Tax Act. This means that the interest earned on Post Office FDs is exempt from tax. However, if the interest earned on Post Office FDs exceeds ₹10,000 in a financial year, then a TDS of 10% is applicable. But, if the individual furnishes their PAN details, then no TDS is applicable.
1. Tax Deduction on Tax-Saver FDs – Tax-Saver FDs are FDs with a minimum lock-in period of 5 years. The maximum amount that can be invested in Tax-Saver FDs is ₹1,50,000, and the entire amount is eligible for tax deduction under Section 80C of the Income Tax Act.
2. Tax Exemption on Recoveries from FDs – If an individual loses money in an FD due to the default of a bank or financial institution, then the amount recovered from the FD is exempt from tax. The exemption is applicable only if the amount is recovered from a bank or financial institution and not from a friend or relative.
Conclusion
FDs not only provide a safe and secure investment option, but they also offer tax benefits that can help individuals save a significant amount of money. It is essential to note that these tax benefits are subject to change with changes in tax laws. Therefore, individuals must stay updated with the latest tax laws to maximize their tax benefits.