Take maximum advantage of tax saving FD

Many times, in order to save taxes, we diligently invest or plan throughout the year. However, often at the last minute, we end up losing the returns for the entire year. Therefore, tax planning should always begin at the start of the financial year. One option for saving taxes for FY2024-25 is Tax Saving Fixed Deposit, also known as Tax Saving FD. What exactly is Tax Saving FD? How does it differ from a normal FD? Which banks offer higher interest rates on Tax Saving FDs, and how does it help in saving taxes? Let’s find out.

Tax Saving FD is a special savings scheme that helps in saving taxes while earning interest. Under Section 80C of the Income Tax Act, 1961, an individual can claim a tax deduction of up to Rs 1,5 lakh annually by investing in Tax Saving FD. The invested amount in FD is deducted from the individual’s income, thus reducing the taxable amount.

Fixed deposits come in two types: Tax Saving FD and Regular FD. Tax Saving FD has a lock-in period of 5 years, meaning you cannot withdraw the invested amount before 5 years. On the other hand, the tenure of a Regular FD can range from 7 days to 10 years, offering flexibility in withdrawal. However, investing in a Regular FD does not provide any tax benefits.

Interest rates on Tax Saving FDs vary among different banks. For example, DCB Bank offers a 7.40% interest rate on Tax Saving FDs, IndusInd Bank’s Indus Tax Saver Scheme offers 7.25%, Yes Bank offers 7.25% for a 60-month FD and 8% for senior citizens, Ujjivan Small Finance Bank offers 7.20% for a 60-month FD, and IDFC First Bank offers 7% per annum on its 5-year Tax Saver Deposit. Other banks also offer additional interest rates up to 0.50% for senior citizens. These rates apply to deposits of up to two crore rupees.

Premature withdrawal or taking a loan against Tax Saving FD is not permitted. The interest on FD can be received monthly, quarterly, or annually. The interest earned from Tax Saving FD is added to your income and taxed accordingly.

Apart from Tax Saving FD, two other popular options for tax deduction under Section 80C are Equity Linked Saving Schemes (ELSS) and Public Provident Fund (PPF). ELSS is a market-linked scheme, offering no guaranteed returns, while PPF has a longer lock-in period of 15 years compared to Tax Saving FD. You can open a Tax Saving FD either offline by visiting a branch or online through the bank’s website or app.