What is Fixed Deposit Under 80C
Fixed deposits are a great financial instrument for risk-free investment. It is also quite popular with the Indian populace. Fixed deposits are available under various types such as senior citizen FD, tax saving FD, FCNR deposits and so on.
Each of the variants offers special benefits to customers and are all available from most banks and large private financial services companies.
Fixed deposit schemes double up as both short and long-term investment instruments for customers. General fixed deposits accounts can be opened with a lot of flexibility in terms of maturity and amount of investment.
What are fixed deposits under Section 80C?
Fixed deposit schemes falling under the ambit of the much-popular Section 80C of the Income Tax Act, 1961 are commonly known as tax saving fixed deposits. These accounts are offered by most of the major banks and financial companies.
Tax saving fixed deposits are at par with other tax saving investment instruments such as Public Provident Funds (PPF), pension plans and National Savings Certificate (NSC), among others. Tax saver fixed deposits are a simple instrument to get deductions up to Rs.1.5 lakhs per year.
The Section 80C of the Income Tax Act offers deductions up to Rs.1.5 lakhs per year to all tax-paying individuals irrespective of their tax bracket. As such, this is a very popular deduction scheme that is used by most of the tax-paying citizens.
Section 80C can be used to receive deductions on a number of investments or expenditures such as PPF, NSC, child education fees, infrastructure bonds, pension funds, tax saver fixed deposits, senior citizen savings scheme (SCSS), unit linked insurance plans (ULIP), life insurance premiums, home loan principal and so on.
A point to note here is that Section 80C provides cumulative deductions up to Rs.1.5 lakhs per year from all investments in relevant instruments.
Features of Tax Saving Fixed Deposits
Tax saving fixed deposits falling under the ambit of Section 80C are packed with features that can help you get more out of your investments. However, there are a few limitations here such as no premature withdrawal and no option to pledge the amount for loans etc. Major features of this type of account are:
- Fixed maturity of 5 years.
- Minimum investment must be Rs.100. Further investments can be made in multiples of Rs.100 only.
- The maximum limit of investments in capped at Rs.1.5 lakhs, which has been revised from Rs.1 lakh previously.
- Interest rate will be same as the one quoted to you by the bank or financial institution.
- Individuals and Hindu Unified Families (HUF) can open this account.
- In case of joint accounts, only the first holder will get tax deductions.
- Premature withdrawal is not allowed.
- Loans cannot be availed against tax saver fixed deposit accounts.
- TDS is deducted on income earned through interests from this account. TDS is charged at 10% p.a. of interests if the account holder has submitted his/her PAN details, else TDS will be charged at 20% p.a.
Benefits of tax saving fixed deposit schemes
Tax saver fixed deposits come with a lot of benefits. Major avenues where you could benefit from tax saving fixed deposits are:
- Open throughout the year unlike tax free bonds issued by the government which are offered from time to time.
- Tax deductions on amount invested up to Rs.1.5 lakhs per year.
- Interests paid out on monthly or quarterly basis.
- Special rates for senior citizens as per the provider.
- Secure investments for the medium term.
Tax saver fixed deposits may not earn you as high as some other tax saving investment avenues such as tax saver mutual funds or insurance policies, but these will ensure that you have a peace of mind when investing your hard-earned savings, and get assured pay-outs at regular intervals.
FAQs on Fixed Deposit Under 80C
- How much money can a person put in FDs under Section 80C?
Under Section 80C, a maximum of Rs. 1.5 lakh may be invested in FDs each fiscal year.
- Can a fixed deposit be covered by the Income Tax Act's Section 80C?
Yes, under Section 80C of the Income Tax Act, fixed deposits (FDs) with a duration of five years or longer are eligible for tax benefits.
- If I took money out of my FD under Section 80C, may I take it out before it matures?
Yes, it is possible to prematurely withdraw from FDs taken up under Section 80C, however there will be a penalty and the tax benefits will be lost.
- On interest accrued on FDs obtained under Section 80C, is TDS deducted?
If the interest earned on FDs purchased under Section 80C exceeds Rs. 40,000 each fiscal year, TDS is indeed deducted.
- Can I borrow money against an FD that I took out under Section 80C?
Loans may be secured by FDs purchased under Section 80C. Nevertheless, depending on the bank's policy, the loan amount cannot be greater than 75% to 90% of the value of the FD.
- Can I receive tax benefits on joint FDs that I own with someone else?
FDs held jointly with another individual are eligible for tax benefits. However, only the primary account user will be eligible for the tax benefits, and the investment amount will count towards their Rs. 1.5 lakh Section 80C limit.
- Can I invest in numerous FDs to receive Section 80C tax benefits?
As long as the total investment does not exceed Rs. 1.5 lakh every financial year, you may invest in more than one FD to qualify for Section 80C tax benefits.
- Post Office's five-year FD is it tax-free?
Your deposit into the 5-year fixed deposit account qualifies for an income tax deduction under Section 80C of the Income Tax Act of India, 1961. The Post Office may withhold tax from your interest payments if they exceed Rs. 40,000 each financial year for regular customers.
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