Tax planning is critical. Whether you are a business owner or a salaried employee, tax planning is always a good idea. There are plenty of tax planning investment schemes offered by lenders and financial institutions in India. However, most of them come with hidden attributes that you only get to know when claiming your tax benefit. If you are truly looking for ways to save tax, you can try fixed deposits. A fixed deposit in India is an investment scheme that NBFCs and other financial institutions provide to individuals as savings as well as tax-saving plans. It offers greater returns on the amount invested. FS has a fixed tenure, and depending on your investment portfolio, your investment period can be either long-term or short-term.
If you are interested in knowing how to save tax by opening an FD Account, this post will help you find everything about it.
So. without further ado, let’s get started.
What are Tax Saving Fixed Deposits?
A tax-saving fixed deposit is a common fixed-income instrument that allows tax deduction. If you make an investment in such deposits, you can claim a tax benefit under the Income Tax Act, section 80C, 1961. As per the guidelines, the maximum benefit you can claim is INR 1.5 lakhs deduction from the total gross income.
Fixed deposits offer higher interest rates when compared to savings bank accounts, among other investments. For instance, the PNB housing FD rates are comparatively higher, and warranties sure return. Moreover, fixed deposits are low-risk in nature because they are not market-linked. Most importantly, it offers flexibility in investment in the multiples of INR 1, as compared to other tax-saving schemes and options.
Please note that while all banks and NBFCs offer FDs that save tax, the interest rate will differ from bank to bank. You are advised to compare the returns, safety, and services provided by the financial institution so that you can make an informed decision.
What are the Features of Fixed Deposits?
An FD account comes loaded with features to help the investors gain the maximum benefit. For starters, it comes with a lock-in period of five years. That is, you can invest in an FD if you have a medium-term investment horizon. Moreover, the interest is taxable. The interest you earn on your investment is eligible for tax as per your tax bracket. The best part about a fixed deposit is that you can open an account with a minimum deposit of INR 1000. Nevertheless, it varies from bank to bank. Some even have a minimum deposit requirement of INR 100. Most importantly, you earn a higher interest rate on your fixed deposits. The rate of interest generally ranges between 7% and 9% across all categories of investors.
A tax-saving fixed deposit is a safe investment where all your invested money can be retrieved at the end of the tenure. Above all, you can expect to get a higher amount than invested.