Know How Fixed Deposit Will Help You To Save Tax

Posted by Shashank Bhaskar on December 11th, 2020

Fixed deposits are one of the most common investment options for Indians. In a fixed deposit, funds are locked in for a period till maturity, and in return, the bank pays interest at a fixed rate on these deposits. The interest rates for these deposits vary based on the duration of the fixed deposit. It is effortless to open an online fixed deposit today using internet banking or mobile banking app.

An efficient way to earn a monthly income open a fixed deposit. Senior citizens can use FD to make a higher interest on their savings. By opting the reinvestment of interest option and to save for a particular short-term goal, you must open a fixed deposit account. But did you know that FD accounts help save tax?

Section 80C:

Section 80C of the Income Tax Act provides deductions for investments made by the individual. Banks and the post office offer 5-year tax-saving fixed deposits. The funds lock-in period is for five years, and the interest rate on these deposits is fixed. If you invest in these fixed deposits, you can get a deduction up to INR 1,50,000 depending on the amount you invest. Depending on the tax slab you fall in, the saving in tax will vary. Using a fixed deposit calculator will help you know how much returns will you get and plan your investments accordingly.

Tax deduction provisions:

A bank is liable to deduct tax on fixed deposit interest if the total income in a year exceeds INR 10,000. However, in the Budget 2019, the limit for deducting tax on interest income was hiked from INR 10,000 to INR 40,000. This means the total interest income will need to exceed INR 40,000 for the tax to be deducted. Use an FD interest calculator to help you know the interest income.

However, if your interest income exceeds this limit but your income does not exceed any tax limit, then you can file Form 15G/15H and submit it to your bank. If you have an online fixed deposit, you can submit these forms online to the bank as well. Once you submit these forms to the bank, the bank will not deduct tax on your fixed deposit incomes. This way, you can pay tax once you assess your income with FD calculator at the time of filing the income tax return.

If you consider the tax savings from the investment, you can plan your investments better and ensure you take the benefit of these provisions. There are facilities to open fixed deposits through digital banking apps as well.