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Fixed Deposit is one of the most recommended investment options, one of the most predominant reasons being its income tax saving feature. Investing in Fixed Deposits on which tax deductions can be availed, as per Section 80C of the Income Tax Act, 1961. This enables investors to save on taxes while building a robust corpus.
These are accompanied by a healthy rate of interest that is comparatively higher than what is offered on savings bank account. The fixed interest rate ensures consistent growth, helping investors to predict the maturity amount. The invested amount is protected against the volatility of capital market, emphasising on FDs being a safe investment instrument. Tax exemptions on Fixed Deposits had been introduced by the Government of India in the year 2006 and are applicable on FDs with a tenure of 5 years and more.
The benefits of tax saver fixed deposits are as follows:
Interest income from tax saver Fixed Deposits is fully taxable. This income is classified under the ‘Income from Other Sources’ category in your IT Return. This income is considered as a part of your total income and, therefore, gets taxed as per the tax slab rate that is applicable to your total income. Your bank deducts this tax at source when they credit the interest to your account. This implies that if you open a tax saver FD for 5 years, your bank will deduct TDS at the end of every financial year and not when the FD matures.
Follow the steps below to understand your share of TDS from the interest income of your tax saver Fixed Deposit.
Here are some facts that you have to be aware of:
Is FD exempted from tax?
Interest income from Fixed Deposits is fully taxable. However, tax exemptions are applicable as per Section 80C of the Income Tax Act, 1961.
Can FD be used for tax exemption?
Tax exemption on Fixed Deposit is applicable as per Section 80C of the Income Tax Act, 1961. However, company Fixed Deposits do not attract tax exemptions under Section 80C of the Income Tax Act, 1961.
Can I break my 5 years fixed deposit?
Tax saving Fixed Deposits have a lock-in period of a minimum of 5 years and, hence, the invested amount cannot be withdrawn before the completion of the maturity term. Premature withdrawal is offered against such Fixed Deposits only on certain terms and conditions.
Is interest on 5 year FD taxable?
Yes, interest income on FDs is fully taxable, irrespective of the maturity term.