Tax Saver FD - How Does a 5 Year Tax Saving Fixed Deposit Work? | AU Small Finance Bank
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How do Tax Saver Deposits Work?

    Tax-Saver Fixed Deposits are a great way to save tax! Most people invest in FDs for 5 years, so they can reduce their taxable income.

    Let’s look at these deposits in detail to understand how they work and if they would be a good investment for you.


    Tax Saving FD

    Investing in a Tax Saving Fixed Deposit makes you eligible for tax deductions under Section 80C of the Income Tax Act, 1961. You can claim up to a maximum of Rs.1.5 lakh.


    What are its Benefits?

    • If you invest in a tax-saver FD with AU Small Finance Bank, you can earn high interest rates. If you are a senior citizen, you’re entitled to earn 0.50% extra on your deposits.
    • Tax Saving Fixed Deposits are tax-deductible, which means if you invest in them, your taxable income is reduced by the amount of your investment.

    Is there a Catch?

    • You must lock your money away for 5 years.
    • The interest earned on this deposit is subject to tax.
    • There is no premature withdrawal allowed on this deposit.
    • You cannot use this deposit as security for a loan.
    • If it is a joint deposit, only the first deposit holder can claim tax exemption.

    How do I open a Tax Saving FD in India?

    Here's a guide on how to open a tax saver Fixed Deposit (FD) in India:

    • Choose Your Bank: Pick a bank offering tax saver FDs.
    • Prepare Documents: Gather PAN card, Aadhaar, photos, and address proof.
    • Visit the Bank: Go to the bank branch of your choice.
    • Fill the Form: Complete the FD application form.
    • Deposit Funds: Put in the desired amount for your tax saverFD.
    • Specify FD Type: Mention you want a regular tax saver FD.
    • Nominate a Beneficiary: Optionally, name a beneficiary.
    • Submit KYC Documents: Provide your documents for verification.
    • Get FD Receipt: Receive an FD receipt with all details.
    • Monitor & Renew: Keep an eye on maturity date for renewal or withdrawal.

    Compare interest rates among banks before starting, and consider tax-saving FDs if eligible. Keep your FD receipt safe for reference.


    What are the Tax Implications on tax saving Fixed Deposit?

    Tax saver FDs are tax deductible under section 80C of the Income Tax Act. However, the interest earned on Tax Saving Fixed Deposits is taxable.


    Can I Renew a tax saver FD?

    Yes, you are allowed to renew your tax-saver FD once it matures.


    How many Tax Saver FDs can I hold?

    There is no limit on how many FDs you want to open. But, remember you should keep track of your FDs. Also, no matter how many FDs you hold, you can claim only up to Rs.1.5 lakh exemption per year under Section 80C.

    If your interest earning exceeds Rs.10,000 per year, you will be liable for tax deducted at source.


    How do I redeem my Tax Saver Fixed Deposit (FD)?

    To finalize the closure of your FD account upon maturity, you will need to present a fixed deposit certificate bearing the signatures of the account holders to the relevant bank. Additionally, you will be required to complete a form bearing your signature, indicating your intention to close the FD on the specified maturity date.


    What is the Tax saver FD investment limit?

    The maximum amount one can invest in a tax saving FD is ₹1,50,000 in a fiscal year.


    How often will I receive interest on my Tax Saving FD?

    Interest on Tax Saving Fixed Deposit (FD) in India is typically paid at regular intervals, which can vary from one bank to another. However, in most cases, the interest on such FDs is paid on maturity.

    It's essential to check with the specific bank or financial institution where you plan to open your tax-saving FD to confirm the exact interest payment frequency and other terms and conditions. Some banks may offer different options, such as monthly or quarterly interest payouts, but payments at maturity of the FD are quite common for tax-saving FDs.


    Who should invest in Tax-saver FD?

    • Taxpayers: Ideal for individuals looking to reduce taxable income.
    • Risk-Averse: Low-risk option, perfect for those seeking stability.
    • Long-Term Planners: Useful for long-term financial goals.
    • Conservative Investors: Offers fixed returns, no market risks.
    • Diversification: Complement a diversified investment portfolio.
    • Minors: Parents can invest for a minor's future.

    What are the tax benefits of tax Saver FDs?

    • Deduction under Section 80C: You can claim a tax deduction of up to Rs. 1.5 lakh per year on the amount invested.
    • 5-Year Lock-in: Your money is locked in for 5 years, ensuring eligibility for the tax benefit.
    • Tax on Interest: While the interest earned is taxable, the principal enjoys tax benefits.
    • No Benefit for NRIs: NRIs don't qualify for these tax benefits.

    How much interest can I earn on a Tax Saver Fixed Deposit?

    You can earn an interest of up to 7.25% per annum on your Tax Saver FD.


    How do I calculate interest on Tax Saving fixed deposit?

    Calculating interest on FDs is now easier than before. You don’t need formulas, counting or physical calculators. Nowadays, there are many online interest calculators available. You just need to search for them and choose any one you like.

    You then need to enter the details required, such as the principal, interest rate, tenure, and compounding frequency.

    The calculator will generate your results. It will tell you how much interest you can earn and how much your maturity value will be.

    This is a good investment to make, especially if you want to save tax. If you are not looking for tax saving options, you can check out tenures of other FDs that give you a higher rate of return. So, get started with your investment now, and reap the full benefits of an FD!

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