Exploring Tax Benefits: Features and Advantages of 5-Year Tax Saver Fixed Deposits under Section 80C

Under Section 80C, a fixed deposit account provides a tax deduction under Section 80C of the Income Tax Act of 1961 named 5-year tax saver FD. These accounts are a form of fixed deposit account. The interest earned is subject to taxation, and the interest rates range from 5.5% to 7.75%. Additionally, it has a lock-in term of five years and provides a deduction of up to Rs. 1.5 lakh per year. This is one of the greatest choices for investors looking for low risk returns and lower tax liability. Tax-saving fixed deposits can be selected depending on convenience, beginning with a minimum investment of Rs 10,000. Many banks also provide a five-year fixed deposit (FD) program for tax savings. However, this scheme does not have the same features, tax, and other benefits and terms as regular FD accounts.

Reasons for investment

• Benefits of both tax savings and attractive interest rates
• Minimum investment of as little as Rs.10,000. (The minimum investment may differ according to banks.)
• Benefit of up to Rs.1,50,000 tax deduction according to Section 80C.
• Flexible interest payments like reinvestment of principal or monthly or quarterly payments.

Key characteristics of the Tax Saver FD: 

• Dual advantages - It offers the advantage of both tax savings and competitive interest rates. It will reduce your tax burden and develop wealth at the same time as your investment grows.
• Deduction of taxes: Under Section 80C of the Income Tax Act, the investor is eligible for tax deductions of up to Rs 1.50 lakh. A Tax Saver FD investment reduces taxable income.
• Choice to begin small: One can start investing with as low as Rs 10,000. This allows the investor to afford to invest in the scheme.
• Flexible interest payments- It offers choices for flexible interest payouts to customize your investment. To match the profits to the financial plan, the investor can select between reinvesting in the principal or paying a monthly or quarterly interest rate.

Required documents for Tax Saver Fixed Deposit

• Identity Proof such as Aadhaar, PAN, Voter ID, Driving License, Passport, Senior Citizen card, etc.
• Address Proof such as Passport, Telephone/Electricity Bill, Bank Statement with Cheque, etc.

Eligibility for 5-year tax saving FD: 

To be eligible for creating this account, the individual must be:

• A Resident of India
• Hindu undivided Families

Advantages of Tax saving Fixed Deposits:

• Less risky and secure.
• At the time of maturity, it is easily redeemable along with the principal.
• Compared to savings accounts, fixed deposits have the potential to generate a higher interest rate.
• FDs only permit deposits in the form of a single lump payment.
• A tax is deducted from the interest earned on fixed deposits.
• A minimum of five years of investment is required to qualify for tax benefits. However, it is feasible to extend it for a longer period of time.
• FDs allow the investor to regulate the size of the deposit according to their preferences.
• Under Section 80C of the Income Tax Act of 1961, investors can receive deductions from their taxable income of up to Rs. 1,50,000 per year.
• Premature withdrawal might not be available.