In this scheme, neither money will be lost nor tax will be levied... and you will get bumper returns of up to 8%..

The same story every year... As soon as the financial year begins or ends, the tension of saving tax begins. Where to invest? Where will the money be safe? Where will we get good returns? In the maze of these questions, we often get stuck in options that are either risky or make us wait for a long time.

But what if we tell you about an investment that solves all three of these problems together? A scheme in which there is no fear of losing money, no hassle of tax, and the returns are also great!

We are talking about a 5-year tax-saving fixed deposit (FD). This is not just an FD, but a smart investment strategy. Let's understand it in detail.

What is a tax-saving FD and why is it so special?

As the name suggests, this is a special type of FD that is primarily designed to save tax. Its biggest identity is its lock-in period of 5 years. That is, once you deposit the money, you cannot withdraw it for 5 years. In return for this lock-in, it gives you three great benefits.

Benefit No. 1: Direct exemption from income tax.
This is its biggest attraction. Under Section 80C of the Income Tax Act, 1961, you can claim full tax exemption on investments up to ₹ 1,50,000 made in tax-saving FDs in a financial year. This means that this amount is directly deducted from your total taxable income, which reduces your tax burden significantly.

Benefit No. 2: Zero risk, guaranteed return.
Unlike the stock market or mutual funds, there is no risk of market fluctuations in FDs. The interest rate at which you start the FD, you get the same rate for the entire 5 years, whether the market goes up or down. Apart from this, your deposit up to ₹ 5 lakh is completely safe and insured under DICGC (Deposit Insurance and Credit Guarantee Corporation).

Advantage number 3: Attractive and fixed interest rates
Banks usually offer better interest on long-term FDs. You also get an attractive and fixed return on a 5-year tax-saving FD.

Understand through calculation: How much your money will earn
Suppose you invest ₹ 1,50,000 for 5 years to take full advantage of Section 80C. So how much money will you get on maturity at different interest rates?

Interest Rate (Annual) Maturity Amount after 5 Years (Estimated) Total Interest Income
6.50% ₹ 2,07,370 ₹ 57,370
7.00% ₹ 2,12,220 ₹ 62,220
7.50% ₹ 2,17,210 ₹ 67,210
7.60% (Top Rate) ₹ 2,18,250 ₹ 68,250

Be sure to know these rules before investing
5 years lock-in
You cannot break this FD for 5 years under any circumstances. The nominee gets this exemption only in the event of the death of the FD holder.

TDS rule on interest
The interest received from FD is not tax-free. If the interest income from all your FDs in a financial year exceeds ₹40,000 (₹50,000 for senior citizens), the bank will pay you the interest after deducting TDS.

No auto-renewal

Unlike normal FDs, tax-saving FDs do not renew automatically on maturity.

No loan facility

You cannot avail a loan against this FD.

If you are an investor who believes in the principle of "safety first" and wants to save taxes at the same time, then a 5-year tax-saving FD is an excellent option for you. It protects you from market risk, gives a guaranteed return, and also reduces your tax liability. It is an ideal solution for those who want stability and certainty in their financial portfolio.

Frequently Asked Questions (FAQs)

1. Can I break a tax-saving FD before 5 years?

No, the nominee can withdraw it prematurely only in case of the depositor's death.

2. What is the minimum and maximum amount one can invest in a tax-saving FD?

The minimum amount is usually ₹1000, and the maximum limit for exemption under 80C is ₹1.5 lakh per annum.

3. Do I have to pay tax on interest?

Yes, if your total interest income exceeds ₹40,000 (₹50,000 for senior citizens) in a year.

4. Can I open a tax-saving FD in a joint account?

Yes, but the tax exemption benefit will be available only to the first holder.

5. Can I get a loan on this FD?

No, a loan facility is not available during the lock-in period of 5 years.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.