Five-year 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 take a look at these deposits in detail to understand how they work and if they would be a good investment for you.
A 5-year term deposit is also called a Tax-Saving FD. If you invest in one, you are 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.
Yes, you are allowed to renew your tax-saver FD once it matures.
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.
To explain this, let’s take a simple example. You deposit Rs.1.5 lakh in a 5-year FD, at 7.30% p.a. We need to consider how frequently interest is compounded. AU Small Finance Bank, for instance, compounds interest on an annual basis. Taking all this into account, after 5 years, you will earn Rs.63348.64.
Upon maturity, you will get back Rs.2,13,348.64.
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!