When we talk about tax saving investment options in India, phrases such as ELSS, SIP and ULIP rule the roost. The average Indian is leaving no stones unturned in ensuring that his personal investment portfolio includes a mix of market linked investment products, which not only fetch him handsome returns, but also give tax benefits in the longer run. Of course, as we all know, long term market linked products, such as insurance or mutual funds, come with an element of risk associated with them.
There are no second thoughts about the kind of returns they will churn up for you in the longer run, but then, are we sidelining the conventional deposit schemes where the principal amount remains intact, and yet, provides pleasing returns? Perhaps, we need to give our investment basket a thorough relook!
Let’s explore the world of Tax Saving Fixed Deposits in India offered by banking institutions and India Post.
Tax Saver Fixed Deposit Schemes by Banks in India
Also known as Time Deposits, since they are based on a predetermined term; nearly all savings banks in the country offer this option as part of their deposits portfolio. A simple-to-understand product where a fixed amount of money is held by the bank for an agreed term. Upon maturity, the depositor is eligible to receive the principal plus applicable interest charges computed on quarterly/annual/other basis. One can claim tax deductions under U/S 80C of the Income Tax Act, 1961 for FD accounts held for a minimum of 5 years.
Things You Must Know About Tax Saver Fixed Deposits
- The maximum amount permitted as deduction is Rs.1.5 lacs.
- TDS(Tax Deducted at Source) is charged at 10% of the earned interest.
- The deposit amount remains locked for the entire term. There is no interim option to make a partial or full withdrawal.
- The interest rate hovers between 8 to 9 percent, depending on the bank, age group and gender of the depositor.
Time Deposit Scheme Offered by India Post
This functions akin to any fixed deposit plan, and takes advantage of the lengthy 5 year tenure which extends benefits of tax deductions under section 80C of the Income Tax Act. With no cap on the deposit amount, a TD account can be easily opened and operated at any branch, across the massive network of India Post offices in India. Flexible features, such as easy transfer of the TD account from one branch to another, joint account holding etc., make this deposit scheme, delightfully unique.
Things You Must Know About Tax Saving Time Deposit
- No limit on the number of deposit accounts an individual can open in any post office.
- Minors above the age of 10 can open and operate the account without any restrictions.
- A 5 year deposit earns an interest of 8.50% calculated on a quarterly basis.
- One can kick start his/her deposit journey with an amount as less as Rs.200 and in multiples thereof.
Dual Benefits of Tax Saver Fixed Deposits
Along with its feature of providing income tax deductions, the 5-year term Fixed Deposit schemes also contributes to your long term goals that require a financial backing. Events such as children’s education, marriage etc., can be easily funded by the money invested in Fixed Deposit accounts.
Give these humble deposit accounts a chance when you plan investments and let it be part of your savings portfolio. While the situation favors it (to your advantage), why not balance this new age convenience with good, tried and tested practices of saving up for a rainy day?