Want to save tax? Save in fixed deposits

Fixed deposits are the most popular investment options available for Indians. Funds get locked in for a period till maturity, and in return, the bank pays interest at a fixed rate on these deposits. The interest rates for these deposits vary based on the duration of the fixed deposit. It is effortless to open an online fixed deposit today using internet banking and net banking.

A fixed deposit account can be used as an efficient way to earn a monthly income. Senior citizens can use FD to earn a higher interest on their savings. By opting the reinvestment of interest option, the FD account can also be used to save for a particular short-term goal. But did you know that a fixed deposit account can be used to save tax?

Section 80C:

Section 80C of the Income Tax Act provides deductions for investments made by the individual. Banks and the post office offer 5-year tax-saving fixed deposits. The funds here are locked in for five years, and the interest rate on these deposits is fixed. If you invest in these fixed deposits, you can get a deduction up to INR 1,50,000 depending on the amount you invest. Depending on the tax slab you fall in, the saving in tax will vary. However, the interest earned on this fixed deposit is taxable. There is no exemption or deduction for this interest.  Using a fixed deposit calculator will help you know how much returns will you get and plan your investments accordingly.

Tax deduction provisions:

A bank is liable to deduct tax on fixed deposit interest if the total income in a year exceeds INR 10,000. However, in the Budget 2019, the limit for deducting tax on interest income was hiked from INR 10,000 to INR 40,000. This means the total interest income will need to exceed INR 40,000 for the tax to be deducted. Use an FD calculator to help you know the interest income.

However, if your interest income exceeds this limit but your income does not exceed any tax limit, then you can file Form 15G/15H and submit it to your bank. If you have an online fixed deposit, you can submit these forms online to the bank as well. Once you submit these forms to the bank, the bank will not deduct tax on your fixed deposit incomes. This way, you can pay tax once you assess your income at the time of filing the income tax return.

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