Tax Benefits for Availing of Fixed Deposit According to Budget 2021

Banks and non-banking financial companies (NBFCs) like Mahindra Finance offer fixed deposits(FDs). FDs are an excellent way to grow your savings with almost no risks.

When you open an account, you deposit a certain amount for a pre-determined period. At the end of the FD’s duration, you receive your investment along with the interest. Alternatively, you can receive the interest at periodic intervals as per your chosen option. The timely payouts of interest can help you meet your expenses.

One of the biggest advantages of FDs is the assured returns. Because the fixed deposit interest rates are locked, any market fluctuation does not affect your returns. Generally, you can earn a higher rate of interest if you start an FD with an NBFC. In most cases, you cannot withdraw the money; however, financial institutions may allow premature withdrawals but may levy a penalty for the same.

When you opt for tax-savings FDs, you can avail of benefits according to Section 80C of the Income Tax Act, 1961. Investments up to INR 1.5 lakh in such FDs are eligible for tax deductions under this section. In such a scenario, the principal is deducted from your gross earnings to calculate the taxable income.

Here are a few things you need to bear in mind when you want to avail of the tax benefits of FDs:

1. These FDs are available for investment only to Hindu Undivided Families (HUFs) and individual investors
2. Financial institutions may have different rules about the minimum and maximum amounts
3. Tax-savings FDs have a lock-in period of five years during which you cannot withdraw the funds or avail of a loan against them
4. Such deposits can be held individually or jointly; in the case of joint holders, only the first holder can claim the exemption
5. Interest exceeding INR 40,000 during a year on the FDs is taxable as per your income tax slab; therefore, Tax Deducted at Source (TDS) is also applicable; however, you can avoid this by submitting Form 15G
6. Nomination facilities are available for tax-saving FDs

Generally, the FD rates offered by financial institutions are higher for senior citizens viz-a-viz regular investors. Senior citizens can get a tax exemption of up to INR 50,000 on the interest earned during a financial year. They can avoid TDS by submitting Form 15H.

Do note that rural and co-operative banks’ FDs do not qualify for any tax rebate.You can invest in tax-saving FDs through a private NBFC like Mahindra Finance. You can visit the issuer’s website to check the fixed deposit eligibilitycriteria and other details.