A fixed deposit account has long since been considered a relatively safe and lucrative investment. In most fixed deposit schemes, money is deposited for a certain time period, and a fixed interest rate is paid after maturity. However, there are still some things you should now about the tax benefits of fixed deposit schemes in order to get the best return on your investment.

  • If you, as a taxpayer, invest in a tax saving FD, you can claim up to Rs.1.5 lakh as a deduction from your income. This is based on the current tax laws, under section 80 C of the Income Tax Act. The investment amount is deducted from the total income to reach the taxable income amount. Fixed deposit schemes are one of the approved ways in which you can claim the tax benefit that section 80C allows.

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  • Your fixed deposit has to remain at the bank or chosen lender for a minimum duration. This time period varies from one lender or company to another. The FD can thus be placed with a minimum amount, which also varies. There is a lock-in period of five years, and withdrawal before the stipulated time is not allowed. Additionally, applying for a loan against fixed deposit is not allowed during the lock-in period.


  • Most banks, NBFCs and even companies offer fixed deposit schemes. You can open a fixed deposit account with any financial institution of your choice, both private and public sector, except for some cooperative or rural banks that do not guarantee FD returns.


  • Other than banks, post offices, too, have the option of fixed deposit schemes. A fixed deposit can be transferred from one post office to another. Tax benefits can be obtained here too, under section 80 C, after fulfilling the pre-existing condition of the five year lock-in period.


  • Both single and joint FDs may be opened but if there is a joint mode of holding the FD, only the first holder can avail of the tax benefits.


  • Sometimes, higher rates of interest on fixed deposits are given to senior citizens (as opposed to the interest rate on the same FD for a regular/non-senior citizen. This difference exists for tax saving purposes.


  • Fixed deposits assure a rate of interest. The interest rates correspond directly with the tenor of deposits. If you invest for a longer time period, your returns are bound to be higher. The interest amount may also be reinvested with the initial capital, or may be redeemed according to your choice.

Also Read: How do Fixed Deposits Help You Save Tax?

  • Earlier, investors would try to invest in fixed deposits in two different branches of the same bank in order to save TDS. Today, this is not possible as an aggregate interest income across fixed deposits in every branch of the same bank is calculated to see what the interest income for that particular year is, and whether it is more than Rs.10,000 or not.


  • Many investors are of the opinion that paying tax can be avoided if they open a fixed deposit scheme under their spouse’s name or child’s name. This is a gross misconception. If a fixed deposit account is opened in the name of a non-working family member (like a spouse) or a minor child, the interest will be added to your current income, and you will be taxed accordingly.


  • At the end of your fixed deposit tenor, if you have opted for a cumulative interest option, it is wise to declare the interest income every year, or else it may lead to complications that obstruct your tax savings.

To capitalise on your investment and get the most benefits on fixed deposit schemes.

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