Tax-Saver FD Evaluated: Convenience, Deductions, Safety, and Liquidity. As the financial year comes to a close, you’re sure to pay a lot more attention to Section 80C of the Income Tax Act. Among the investment instruments that can give you a tax deduction via this section is a 5-year tax-saver fixed deposit. This can be a convenient investment avenue for you if you want to remain on safe territory and reduce your tax liability at the same time. To understand a tax-saving FD better, take a look at these 4 features it offers you.
Excluding rural and co-operative banks, you can open a 5-year tax-saver FD at any private/public sector bank. You can start investing either via the online portal of the bank or offline by physically visiting your local branch. You even have an option of opening this kind of FD at your post office. In this case, it will be termed as a Post Office Time Deposit.
In terms of eligibility, individuals, senior citizens, and HUFs can invest in a tax-saver FD. Minors can invest as well. If you are opening a fixed deposit account for a minor in your family, then you will have to hold the account jointly. You can then claim tax benefits on such an FD.
Section 80C tax deduction
As per the provisions of the Income Tax Act, you can claim deductions of up to Rs.1.5 lakh every financial year basis your contributions in a tax-saver FD. To understand this benefit, consider that your annual income is Rs.11 lakh. As per current tax slabs, you pay taxes at a 30% income tax rate. However, if you invest Rs.1.5 lakh in a tax-saving FD, your taxable income becomes Rs.9.5 lakh. With this deduction, you drop to a lower slab and pay taxes at only 20% income tax rate.
Safe investment environment
Tax-saving fixed deposits are non-market-linked investment options. For this reason, these FDs continue to give you stable returns even if there are market fluctuations. You earn returns at the FD interest rate your financier promised you during the time you started the investment with them. While you get guaranteed returns, you are also ensured that your finances remain in a stable environment.
Liquidity via interest payouts
Tax-saver FDs afford you regular monetary assistance by giving you the option of earning interest throughout the tenor, in parts. So, in case you need to service EMIs for your refrigerator, choose the monthly payout option, and in case you require to foot bi-annual medical expenses, opt to earn interest every 6 months.
One drawback of tax-saver FDs is that in terms of liquidity, the investment is slightly rigid and does not offer substantial finances through the course of the tenor. To illustrate, consider the fact that a tax-saver FD comes with a lock-in period of 5 years, and does not make room for premature withdrawals. Further, a tax-saving FD cannot be used as collateral to get a loan.
If you seek flexibility, it may be more rewarding for you to choose a regular Fixed Deposit by issuers like Bajaj Finance. Here, you get to choose flexible tenors of 12 to 60 months for your investment and can use your investment as security to obtain a timely loan in case your finances run dry. Additionally, you can tailor the FD to your short-term financial goals by opting for monthly, quarterly, half-yearly, or yearly interest payouts.
Moreover, investing with Bajaj Finance will fetch you the best FD interest rates in India. Here the FD rates run up to 8.75% for new customers and 9.10% for senior citizens on an investment made for 36 months with payout at maturity. This fixed deposit couples high earnings with investment safety. ICRA’s MAAA and CRISIL’s FAAA ratings on this FD promise you a stable and secure investment environment. It takes just Rs.25,000 to get started, and you can begin your investment online too!
Finally, when planning your finances this season, make sure you use the Bajaj Finance FD calculator, as it computes your returns in an instant and gives you access to the interest data you will need to reduce your tax liability.