Tax benefits of FDs

Fixed Deposits (FDs) are a good way of saving money. The interest rate or the returns may not be high when compared to other savings instruments, but they are considered safe and also seen as a good way to claim tax deductions.

As per the Income Tax Act of India 1961, provisions are available (subject to conditions) to taxpayers under Section 80C to seek deductions if they have FDs. However, the permitted amount is the total of all deductions allowed under this section and not on FDs alone.

How much

As per the current tax laws, taxpayers with FDs can avail of tax benefits to a maximum of Rs 1.5 lakh a year from their gross taxable income.

Conditions

• Only individuals and Hindu Unified Families can invest in these tax-saving FDs.

• FD investment can be through a public or private sector bank.

• You can also seek tax benefits if invested in a Post Office Time Deposit of five years.

• A minimum amount is specified for the FD, the figure of which varies from bank to bank. Usually it is a minimum investment of Rs 100 with further investments in multiples of Rs 100 only.

• Tax-saving FDs have certain conditions like a lock-in period of five years and no premature withdrawals.

• No loans can be drawn against these FDs.

• A tax-saving FD can have joint holders but tax benefits will go to only the prime or first holder.

When

You can claim the tax benefits only during the financial year and not before.

How

You can submit supporting documents and relevant forms when you file your Income Tax returns for a particular financial year.

TDS

TDS (or tax-deducted-at-source) will be deducted on the interests accrued on the FDs if the interest is more than Rs 40,000 (Rs.50,000 for Senior citizens)  in a financial year. For Resident customers, If you have submitted your PAN card details then the deduction will be at 10% per year on the interests. Without PAN card, bank will deduct 20% per year. 

You can avoid TDS by submitting Form 15G declaring your ineligibility. Senior citizens have to submit Form 15H.

Use FD Interest Calculator and Get details of maturity amount and interest earned on deposits.