If you are planning to invest in any endowment or money back plan of Life Insurance to save tax, then select Tax Saving Bank FD instead.
All banks in India offer the Scheme of Fixed Deposit for tenure from seven days to ten years. This account is known as Fixed Deposit (FD) Account, whereas in some other countries it is also known as Term Deposit or Bond.
The bank reduces the price of its currency due to Inflation adjustment every year. Therefore, the bank deducts interest rates on deposits in various types of bank accounts. Interest is paid up to 7% -9% under the Fixed Deposit Scheme, so now if you get FD of your savings, it takes at least 8-10 years for your money to double, while some years ago, this interest rate was about 15%, so in just 4-5 years, the deposit amount in your FD account doubled.
Fixed Deposit of banks help to save income tax
With “Tax Saving FD” at a bank or post office, you can save tax under Section 80C at the time of investment. This is a safe and guaranteed return option for the investment. On the interest received, you have to pay tax according to the income tax slab. According to the Deposit Insurance and Credit Guarantee Corporation, the sum assured up to 1 lakh rupees is insured.
Four benefits of investing in tax-saving bank FD
Online FD: Many banks provide an online facility for tax saving FD. It means that you can get tax saving FD through Net Banking.
Lock-in Period: The minimum lock-in period in the number of savings options under section 80C of Income Tax is three years for the Equity Linked Savings Scheme (ELSS). After that, the lock-in period of tax-saving bank FD and NSC is the lowest, five years. The Public Provident Fund (PPF) lock-in period is 15 years and the ULIP’s five years. From the perspective of the lock-in period, the tax saving bank FD is attractive.
Safe deposit: It is also the safest as the RBI guarantees deposits of up to one lakh rupees.
Direct Linking to account: The principal and interest of FD on maturity comes directly to your bank account.
Remember, by investing in tax-saving FD, you can take advantage of the income tax, but interest from this will be taxable. You can not withdraw money from the tax-saving FD before maturity nor can you take a loan against it.
Under the rule, if the interest received from FD in a financial year is more than Rs 40000/-, then before the payment of interest to the bank depositor, 10% tax-a-source (TDS) can be deducted. If you have opened more than 1 FD in any bank then the interest will be computed by the interest of all FDs.
However, you can claim the tax deducted by filing income tax returns. If you don’t want to cut your TDS from the bank, you can submit the form 15G/15H. This is a self-declaration form, in which there is no declaration of your taxable limit.