Last-Minute Tax-Saving Strategies: Explore Fixed Deposits
As the financial year draws to a close, many individuals are racing against time to finalize their tax-saving investments. While some have planned ahead, others are scrambling to maximize their deductions before the deadline. Among the various options available, Tax-Saving Fixed Deposits (FDs) have emerged as a favored choice for conservative investors looking to secure their savings while enjoying tax benefits.
Understanding Tax-Saving Fixed Deposits
A Tax-Saving Fixed Deposit is a specialized term deposit that offers tax advantages under Section 80C of the Income Tax Act, 1961. This provision allows investors to claim deductions of up to ₹1,50,000 from their taxable income within a financial year. One of the key features of these deposits is their fixed interest rate, which remains constant throughout the five-year term, providing a reliable return on investment.
However, it is important to note that Tax-Saving FDs come with a mandatory five-year lock-in period, during which early withdrawals are not permitted. This stipulation ensures that the investment grows steadily over time, making it an attractive option for those who prefer a secure and predictable savings vehicle.
Current Interest Rates on Tax-Saving FDs
Interest rates for Tax-Saving Fixed Deposits vary across banks, and it is essential for investors to compare these rates before making a decision. Here are some of the current interest rates offered by various banks:
- DCB Bank: 7.40%
- Axis Bank: 7.00%
- IndusInd Bank: 7.25%
- Yes Bank: 7.25%
- Federal Bank: 7.10%
- HDFC Bank: 7.00%
- Bank of Baroda: 6.80%
- Canara Bank: 6.70%
- SBI (State Bank of India): 6.50%
- RBL Bank: 7.10%
- IDFC FIRST Bank: 6.75%
- Kotak Mahindra Bank: 6.20%These rates are subject to change, so investors should verify the latest offerings before committing their funds.
Tax Implications of Interest Earnings
While Tax-Saving FDs provide a deduction of up to ₹1,50,000 under Section 80C, it is crucial to understand how interest earnings are taxed. The interest accrued on these deposits is considered part of the investor’s total taxable income and is taxed according to their income tax bracket.
Banks are required to deduct Tax Deducted at Source (TDS) on interest earnings exceeding ₹40,000 annually (or ₹50,000 for senior citizens). When filing income tax returns, individuals can claim refunds or adjust TDS amounts if their total tax liability is lower than the deducted amount.
Unlike standard fixed deposits, Tax-Saving FDs do not allow for loan or overdraft facilities, and they do not automatically renew upon maturity. Investors must manually reinvest their funds if they wish to continue earning interest after the term ends.
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