Fixed Deposit is a financial tool that has enjoyed iron-clad trust of the general population since decades, when it comes to savings. Since it is a bank-based investment product, closely monitored by RBI, investors are assured of its safe and low-risk nature. The money deposited is safe and is easily redeemable with interest once it reaches maturity. To allow people to make the most of the deductions under section 80C, tax-saving fixed deposits have been introduced by the banks for the investors.

Why don’t you look at the benefits of Tax-Saving Fixed Deposits?

• Hassle Free

One can invest in this FD easily by visiting a bank, filling the form and giving a cheque. In fact, if you place the FD in the same bank branch on which you are drawing the cheque then the transfer of funds can happen quickly and the investment can be done within a few hours. This can also be done online, if you are comfortable with net banking.

• Lesser Risk

A debt investment is safer than equity-based tax-saving avenues such as ELSS schemes. Returns on a tax-saving FD are also guaranteed contractually by the lender (the bank or post office) and fixed for the term of the FD.

• Lesser Lock In Period

Amongst debt investments offering the Section 80C tax benefit, this is the one with the smallest lock in period of 5 years and offering a periodic interest pay out option. 5 year NSCs also offer Section 80C tax benefit but are cumulative instruments and do not offer periodic interest pay outs. Consequently, debt investment tax-saving FDs are comparatively more liquid, safe and easy option.

Below are a few important points you should be aware of before investing in tax-saving FDs:

• One can hold these FD's either in 'Single' or 'Joint' mode of holding. In case the mode of holding is joint, the tax benefit is available only to the first holder.
• A person can avoid TDS deduction on the interest earned by submitting Form 15G (or Form 15H for senior citizens) to the bank.
• Only Individuals and HUFs can invest in tax-saving fixed deposit (FD) scheme.
• These deposits have a lock-in period of 5 years. Premature withdrawals and loan against these FD's are not allowed.
• A person can invest in these FD's through any public or private sector bank except for co-operative and rural banks. Investment in Post Office, Time Deposit of 5 years also qualifies for deduction under section 80 (C) of the Income Tax Act, 1961.
• Post Office Fixed Deposit can be transferred from one Post office to another.