5 Reasons to Invest in Tax Saving Fixed Deposits

If you are new to tax-saving investment, then one of the best ways to start is by going for a tax-saving Fixed Deposit (FD). It is a type of FD where you can get a tax deduction on the investment made as per Section 80C. While there are many other 80C investment options, tax-saving FDs offer many advantages.

Given below are the top 5 reasons why tax-saving FDs are the best for you.

Highly Convenient

It is simple and straightforward, especially for a first-time investor. It requires a one-time lump sum deposit, which saves a lot of hassle. Moreover, you can simply open an FD account online from your bank’s website or mobile app. You can also visit the branch or contact its customer care to open an FD account.

Secure

Fixed deposits are a hundred percent secure. Deposits up to Rs 5,00,000 in a bank are insured by DICGC of the RBI. This means, even if the bank is not able to give you back your money, the RBI will give you back your money.

Fixed Returns

One of the best features of a fixed deposit is the guaranteed returns it offers. Other 80C investment options such as ELSS funds carry a risk with them as the returns depend on the market scenarios. However, in FDs, you get the same returns as promised throughout the tenure. This makes it a favourite of risk-averse investors and those who are looking to make fixed earnings on the deposits.

Tax Deduction

Investments up to Rs 1.5 lakh in a fixed deposit can be deduced from the taxable income under Section 80C. For example, if your taxable income is Rs 5,00,000 in a financial year and you invested 1.5 lakhs in an FD, you can reduce this from the taxable income to reduce it. Thus, your taxable income will now become 3.5 lakh, which can reduce your tax burden considerably. The interest earned from FDs is added to the income, and tax on FD interest is calculated by applying the tax rates as per the income tax slab of that year. Banks deduct TDS in case the interest payout exceeds 40,000 in a year. For senior citizens, this limit is at 50,000.

Reasonable Lock-in Period

All 80C eligible investments come with a lock-in period. For example, PPF (Public Provident Fund) comes with a lock-in period of 15 years. FDs are reasonable, with a lock-in period of 5 years. While ELSS funds offer the lowest lock-in period, FDs enjoy the lowest lock-in period among the fixed returns options.

Fixed deposits have won the trusts of millions of Indians since decades. Because of the attractive payouts and simplicity of tax-saving fixed deposits, many people are now choosing to invest more in it than going for the basic savings account. If you make wise choices in saving money judiciously and consistently invest to reap maximum yield, you not only stand to save thousands of tax money but can also enjoy a multitude of benefits that these schemes promise to offer.