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In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/492
Choosing a tax-saving Fixed Deposit under 80C is a smart choice for individuals seeking tax benefits and a secure investment with guaranteed returns.
Considering tax-saving tactics is essential when deciding how to allocate resources and manage finances. Tax-saving fixed deposits are currently the preferred choice for low-risk investors out of many investment options. In addition to ensuring significant profits, these particular fixed deposits also provide a favorable tax deduction under Section 80C of the Indian Income Tax Act, 1961.
Investors who already invest in a tax-saving Fixed Deposit can thus effectively cut down on their tax outgo while at the same time ensuring that their savings are growing at a steady pace. Whether you are a beginner in investing or just an experienced saver, it is crucial to know what is tax-saving Fixed Deposit to make better choices and improve your savings strategy.
A tax-saving FD is a specific form of financial tool developed to allow citizens to minimize their tax amounts while earning predetermined interest upon investments. As per Section 80C of the Income Tax, the account holders can avail the deductions on the amount invested on these FDs up to a limit of ₹1. 5 lakh per fiscal year for managing the organization and handling all the related issues effectively. However, one important feature of tax-saving FDs is that they have certain restrictions on their maturity period, which usually cannot be less than five years. In this period, one cannot withdraw before a specified period.
Although the amount that one pays can be claimed as a tax deduction, the interest that is earned on these deposits is all fully taxable. Nevertheless, tax-saving Fixed Deposits continue to be favored among conservative investors, who are willing to lock in their money for a certain period of time and get regulated returns with added tax advantages.
A tax-saving fixed deposit works like any other fixed deposit account, whereby the investor deposits a lump sum for a specific period of time. The depositor gets a predetermined rate for a given period in the deposit to avoid being affected by changes in the rates of interest. Another feature of the tax-saving fixed deposit plans is that they cannot be renewed automatically like the normal fixed deposit schemes. They are accompanied by a five-year lock-in period, withdrawal of which is not allowed before the prescribed period elapses. This lock-in period enables the investor to focus on a particular investment for longer years.
Investing in a tax-saving Fixed Deposit offers several advantages, making it a popular choice for individuals seeking to grow their savings while minimizing tax liabilities. Here are the top features of a tax-saving Fixed Deposit:
This investment tool acts as a tax-saving means that can help you save tax under Section 80C of the IT Act, 1961. You can claim this exemption on investments of up to ₹1.5 lakh, reducing your taxable income.
Lock-in Period
The Fixed Deposit helps an individual save tax, and the lock-in period for this account type is 5 years. At this time, the interest rates are fixed, which offers serene markets and definite returns for the investors.
The actual investment amount is tax-free, but the interest obtained from a tax-saving Fixed Deposit is considered taxable and attracts TDS – Tax Deducted at Source.
This means that, unlike a normal FD where premature withdrawal, overdraft, or loan facilities are allowed, it is not permissible in a tax-saving Fixed Deposit. This guarantees a person’s commitment to saving in the long run.
The Fixed Deposit does not have an auto-renewal facility. When futures are due, investors are required to be more active in making the investments they want to undertake.
Income tax saving Fixed Deposits provide convenience in terms of periodical payments of the interest amount. Interest can be paid as dividends on a monthly or a quarterly basis or, as many investors opt for, have it rolled and added to the principal amount to earn even higher interest.
The interest rates may also differ from one bank to another and the rates applicable for the Indian citizens or Hindu Undivided Families (HUF) may not be the same. Tax-saving Fixed Deposits come in single or joint forms, taxation provisions relating to the same will be permitted only to the first joint account holder.
FDs are one of the most trusted investment tools because of their security and guaranteed interest rate returns, but the interest income received on FDs is taxable to a certain extent. Here are some strategies to avoid tax deductions on FDs:
By submitting Form 15G (for individuals) or Form 15H (for senior citizens), you declare that you have no taxable income for the relevant financial year. This exempts you from TDS deductions on the interest earned.
It is always advisable to time your Fixed Deposits in such a way that would help avoid getting into tax deductions. To avoid TDS deductions, it is wise to ensure that any interest accrued in a financial year does not exceed ₹40,000 (₹50,000 in the case of senior citizens).
Another way of getting out cheap is by having a split investment in FD to have a good tax strategy. Open one Fixed Deposit under your own account number and another under someone of the Hindu Undivided Family (HUF) member account number. This ensures that both FDs are considered separately for tax purposes, which may help minimize one total tax bill.
To claim FD deduction under Section 80C:
Opening a tax-saving FD under 80C requires specific documentation to ensure compliance with regulatory requirements. Here Is a list of essential documents you will need:
You will need to provide a valid government-recognized identification document. Accepted forms of ID include:
Taxation on interest earned from Fixed Deposits is an important aspect of financial planning, especially when exploring tax-saving investments such as tax-saver FDs. Below is a detailed examination of the tax rules governing interest earned on Fixed Deposits:
Investing in a tax-saver FD offers a major advantage of receiving a tax benefit of up to ₹1.5 lakh as per Section 80C of the Income Tax Act. This implies that investors can subtract the amount they invested from their taxable income, resulting in a tax-free investment.
While there is a tax benefit on the initial amount put into a tax-saving Fixed Deposit, any interest gained from the investment is subject to full taxation. Just like with normal FDs, the interest earned is considered taxable income and is subject to deduction at source (TDS).
If the interest earned during a specific financial year is more than ₹40,000, a 10% TDS must be paid on the interest earned. In the case of senior citizens, this threshold is increased to ₹50,000. Nonetheless, individuals with income below the specified limit for tax deductions can complete Form 15G or 15H to prevent TDS on their interest earnings.
When choosing tax-saving deposits, one must consider certain factors. This consists of the five-year restriction on withdrawals, preventing early access to funds, and the lack of overdraft options for tax-saving Fixed Deposits. Investors also need to be cautious about the ₹1.5 lakh maximum investment limit permitted in a financial year as per Income Tax Section 80C.
Tax Saving Fixed Deposit is recommended for investors looking to save taxes while receiving a guaranteed rate of return. Investing ₹1.5 lakh in a tax-saving Fixed Deposit under section 80C of the Income Tax Act allows for deductions. These FDs have a five-year lock-in period to discourage impulsive financial decisions. By submitting Form 15G or 15H, one can avail themselves of tax exemption on interest earned, but the earned income is still taxable. Knowing the ins and outs of tax-saving Fixed Deposits can enhance financial planning and offer a valuable investment option.
1
The tax-saving Fixed Deposits under Section 80C are tax savers in nature, whereas normal Fixed Deposits do not have tax deductions.
2
You can save up to ₹1. 5 lakh in taxes by investing in a tax-saving Fixed Deposit which comes under Section 80C.
3
Income-tax Fixed Deposits have a maturity period of five years, and the facility to withdraw the amount from the FD prematurely is not available.
4
No, loans against tax-saving Fixed Deposits are not permitted.
5
Yes, senior citizens enjoy a higher threshold of ₹50,000 for TDS exemption on interest earnings.
6
NRIs are eligible to invest in Tax-Saving Fixed Deposits subject to certain conditions and regulations.
In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/521
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.