Explained: Bank FD and Tax Saving Under 80C
11 Aug, 2023
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Bank FD under 80C has long been regarded as a dependable investment alternative due to its stability and guaranteed returns.
In this post, we will dive into bank FDs and tax savings under 80C that may help you with your financial planning. In addition, we will answer three commonly asked questions to provide you with a thorough grasp of this finance-driven strategy.
Understanding tax saved FD under 80C
Bank Fixed Deposits (FDs) are financial instruments where you deposit a certain amount with a bank for a fixed period, typically ranging from a few months to several years.
In return, the bank pays you a predetermined interest rate, providing you with steady returns on your investment. FDs are favored by risk-averse individuals seeking stability and assured income.
Tax-Saving Benefits under Section 80C
Section 80C of the Income Tax Act, 1961, aims to encourage individuals to invest in specified financial instruments while simultaneously reducing their taxable income.
Under this section, you can claim deductions of up to ₹1.5 Lakh from your gross total income. Bank FDs are one of the eligible investment options under Section 80C, allowing you to enjoy the benefits of earning returns on your investment while reducing your tax liability.
Conclusion
Bank FD and tax saving under 80C offer an attractive investment option for those seeking stability, guaranteed returns, and tax efficiency.
By investing in bank FDs, you not only get interest on your savings, but you also minimize your tax obligation, which improves your overall financial well-being. However, before making any investment selections, it's critical to evaluate issues such as the lock-in period, interest rates, and tax ramifications.
Diversifying your investing portfolio through mutual funds, Public Provident Fund (PPF), National Savings Certificate (NSC), and equity-linked saving schemes (ELSS) can help you maximize profits and minimize risk.
What is the lock-in period for bank FDs under Section 80C? What is the lock-in period for bank FDs under Section 80C?
To avail the tax benefits under Section 80C, your bank FD should have a minimum lock-in period of five years. During this period, you cannot withdraw the funds without incurring penalties (in the form of reduced interest rates or even deduction of principal amount in certain cases).
Therefore, it's important to assess your financial goals and liquidity requirements before committing to a long-term FD.
Are the interest rates on bank FDs fixed?
Yes. Bank FDs generally offer fixed interest rates for the entire tenure of the deposit. However, it's essential to compare the rates offered by different banks before making an investment.
Banks may offer varying interest rates, and selecting a bank that offers higher rates can help you maximize your returns.
Is the interest earned on bank FDs taxable?
Yes, the interest earned on bank FDs is subject to taxation. However, under Section 80C, the amount invested in a bank FD is eligible for the deduction, which helps in reducing your tax liability. It's advisable to calculate the tax implications beforehand to make informed investment decisions.
Which FD is Tax Free?
Currently, in India, there is no FD is tax-free. However, to get tax exemptions on bank FDs one has to submit a self-declaration form or a TDS waiver about zero taxable income.
How much TDS bank deduct on FD?
The current Tax Deduction at Source (TDS) is at 10%. If the interest accrued is more than Rs. 40,000, TDS is deducted at the time when interest is credited and not during FD maturity. For senior citizens, the threshold is Rs. 50,000.
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