Tax consultants
Investments that save taxes: Bank Fixed Deposit plans that offer interest rates as high as 7% can help you save taxes. Under Section 80C of the Income Tax Act, 1961, taxpayers who invest in five-year guaranteed-distance (FD) schemes may claim an income tax deduction.
Overview
- Under Section 80C of the Income Tax Act, 1961, taxpayers who invest in five-year guaranteed-distance (FD) schemes may claim an income tax deduction.
- Any investor who funds a tax-saving fixed deposit account can deduct up to Rs 1.5 lakh annually.
- Every public or private bank, except for cooperative and rural banks, allows investors to make tax-saving FD purchases.
You have until the end of the year to turn in your investment proofs for FY2023–2024. Don’t panic if you haven’t invested in tax-saving options yet; you still have until March 31 to do so. When filing the FY24 Income Tax Return (ITR), investments made after the end of FY24 will not be eligible for deductions under the Old Tax Regime.
Fixed Deposits That Save Taxes
Several banks have raised interest rates on tax-saving fixed deposits (FDs) following the Reserve Bank of India’s (RBI) five consecutive hikes in the repo rate in 2022. Under Section 80C of the Income Tax Act, 1961, taxpayers who invest in five-year guaranteed-distance (FD) schemes may claim an income tax deduction.
It is important to note that investors in this case should be individuals or Hindu Undivided Families.
Any investor who funds a tax-saving fixed deposit account can deduct up to Rs 1.5 lakh annually. Investors in these FD schemes are prohibited from withdrawing their money for five years. Deposits can be made under a single or joint name, with the first holder eligible for the Income Tax advantage as per the government’s rules.
Every public or private bank, except cooperative and rural banks, allows investors to make tax-saving FD purchases. The generated interest is subject to taxation and may differ amongst banks.
1. A 7% interest rate is offered by HDFC Bank on 5-year tax-saving FDs.
2. ICICI Bank offers 7% interest on 5-year tax-saving FDs.
3. The 5-year tax-saving FD interest rate offered by Axis Bank is 7%.
4. Yes Bank 7% interest rate on tax-saving 5-year FDs
5. Canara Bank 5.70 percent interest rate on tax-saving 5-year fixed-rate bonds
6. State Bank of India (SBI): 6.50% interest rate on tax-saving 5-year fixed deposits
7. The 5-year tax-saving FD interest rate offered by Punjab National Bank (PNB) is 6.50%.
8. Interest rate on Kotak Mahindra Bank’s 5-year tax-saving fixed deposits: 6.20%
It should be noted
You will pay a penalty and forfeit the tax exemption benefit if you take money out of your tax-saving FD before the deadline.
Only the initial holder of a joint tax-saving FD is eligible for the tax advantages.
FDs versus alternative saving options
| Investment Type | Returns | Lock-in Period | Tax on Returns |
| 5-Year Bank Fixed Deposit | 5% to 7% | 5 years | Yes |
| National Savings Certificate (NSC) | 6% to 8% | 5 years | Yes |
| National Pension System (NPS) | 8% to 10% | Till Retirement | Partially Taxable |
| ELSS Funds | 12% to 15% | 3 years | Partially Taxable |
Tax-free investment in India
In India, various tax-free investment schemes provide individuals with opportunities to save and grow their money while enjoying tax benefits under different sections of the Income Tax Act. These schemes cater to diverse financial goals and risk appetites.
The Public Provident Fund (PPF) is a popular long-term savings option, offering a 15-year lock-in period and tax deductions under Section 80C. Similarly, the Employees’ Provident Fund (EPF) allows both employees and employers to contribute, with these contributions being eligible for deduction.
For the future education and marriage expenses of the girl child, the Sukanya Samriddhi Yojana (SSY) is an attractive option, providing tax benefits under Section 80C. National Savings Certificate (NSC) and tax-saving fixed deposits with banks are fixed-income options with five or ten-year lock-in periods, offering tax deductions under Section 80C.
Equity-Linked Savings Schemes (ELSS) are mutual funds with a three-year lock-in period, providing potential returns from the equity market along with Section 80C benefits. Additionally, a 5-year fixed deposit with the Post Office and investments in the National Pension System (NPS) also offer tax benefits under Section 80C, contributing to a diversified portfolio.
Investors must stay informed about changes in tax laws, as these schemes may be subject to revisions. Seeking advice from financial professionals ensures that individuals make informed decisions based on their financial objectives, risk tolerance, and the latest regulations. As the financial landscape evolves, staying updated allows investors to optimize their portfolios while minimizing tax liabilities.