Tax-saving term deposits (FDs) are one of the most popular investment plans because they serve both purposes of an investor: to save money on taxes and to protect against market volatility because they are in no way linked to stocks.
Unlike mutual funds and other investment vehicles, tax-saving term deposits do not generate market-related returns. They have a fixed interest rate and guaranteed returns for the duration of the loan. Interest from FDs can serve as a regular source of income for senior citizens, in addition to saving them money on taxes. Tax-saving DFs have a fixed term of five years. These investment options allow the investor to avail a tax deduction of up to Rs 1.5 lakh in a financial year under Section 80C.
Hindu Undivided Individuals and Families (HUFs) are the only ones who can invest in tax-saving DFs under current tax laws. One can start a tax savings FD with any bank, including the bank with which one already has a savings account, as long as the bank allows one to do so without first opening a savings account.
Tax-saving DF interest payments
The interest rate offered on these FDs varies from bank to bank. One can choose from cumulative interest or non-cumulative options of tax reduced DFs which are normally offered by most banks. The cumulative option means that the interest accrued on your capital will be reinvested and paid to you at maturity. On the other hand, in the event of a non-cumulative option, the interest will be paid to you on a monthly/quarterly/half-yearly/annual basis as proposed by the bank. Seniors generally get higher interest rates on tax-saving DFs.
Five banks offering
DCB Bank 6.6%
Industrial Bank 6.5%
RBL Bank 6.3%
IDFC First Bank 6%
Bank Karur Vysya 5.9%
The TDS is applicable since the interest received is taxable according to the tax bracket of the investor. Interest on deposits is paid monthly or quarterly, or it can be reinvested. By submitting Form 15G (or Form 15H for seniors) to the bank, a person can avoid the TDS deduction on interest earned.