Tax-saving fixed deposits (FDs) qualify for a deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act, 1961. The maximum investment allowed per year in tax-saving fixed deposits is Rs 1.5 lakh and the deposits have a mandatory lock-in period of five years.
The term of a tax-saving fixed deposit is five years, so you cannot cancel a tax-saving fixed deposit midway. In simple terms, your money is locked in for five years.
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It is important to note that interest earned on tax-saving fixed deposits is subject to tax deducted at source (TDS) as per the investor's tax rate. According to ET, TDS is applicable if the total interest earned by an individual in a financial year exceeds Rs 40,000. However, senior citizens can claim interest deduction up to Rs 50,000 per year under Section 80TTB.
Top 5 tax-efficient bank fixed deposits
When choosing a bank for your tax-saving fixed deposits, it is important to compare the interest rates offered by different banks rather than simply choosing a bank that has a savings account. The higher the interest rate, the higher your earnings will be in the long run.
Let's take a look at the top 5 tax-efficient bank fixed deposits, based on data compiled by ET Intelligence Group.
Term: 5 years or moreInterest Rate (%)How much will 10,000 rupees grow toDCB Bank7.414,428Dhanlaxmi Bank7.2514,323IndusInd Bank7.2514,323YES Bank7.2514,323City Union Bank7.114,217
Experts are of the opinion that fixed deposit rates have likely peaked in the current cycle and if the Reserve Bank of India (RBI) cuts repo rates, banks will start lowering fixed deposit rates.
“Given the current high interest rates and the plateau in interest rate increases, there is currently an opportunity to lock in higher yields before the reversal cycle begins,” advises Nirav Karchera, head of research at Fizdom.
FD Calculator: How much will Rs 10,000 invested in fixed deposit grow?
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