Things to know about tax-saving fixed deposits
Who can invest and how much
Only Individuals and Hindu Undivided Families (HUFs) can invest in tax saving FD scheme. The FD can be placed with a minimum amount which varies from bank to bank.
How to invest, lock-in and maturity
A person can invest in these FDs through any public or private sector bank except for co-operative and rural banks. These deposits have a lock-in period of 5 years. Premature withdrawals and loan against these FD's are not allowed.
Who can hold and get tax benefit on FDs
One can hold these FDs either in 'Single' or 'Joint' mode of holding. In the case the mode of holding is joint, the tax benefit is available only to the first holder. According to current income tax laws, under Section 80C of the I-T Act, your tax deduction claim for investments in tax-saving fixed deposits is to be deducted from gross total income to arrive at taxable income. Nomination facility is available for these FDs.
Post Office Time Deposit investments
Investment in POTD of 5 years also qualifies for deduction under section 80(C) of the Income Tax Act, 1961.
Transfer of Post Office Fixed Deposit
POFD can be transferred from one post office to another.
Taxability of interest income
The interest earned is taxable as per the investor's tax bracket and therefore, TDS is applicable. The interest on deposits is payable on either monthly/quarterly basis or can be reinvested. A person can avoid TDS deduction on the interest earned by submitting Form 15G (or Form 15H for senior citizens) to the bank. Senior citizens can claim deduction of Rs 50,000 on the interest earned from deposits as per the newly inserted section 80TTB.
Interest rate differential
Most banks offer slightly higher interest rates on FDs to senior citizens (as compared to the interest rate offered on the same FD to a non-senior citizen). This interest rate differential exists for tax saving FDs also.