What are Tax-Saving Fixed Deposits?

Fixed Deposits, or simply FDs, are one of the most trusted forms of investment for the Indian masses. A Fixed Deposit requires you to invest a certain amount in a lump-sum. Interest is added to this amount regularly. After your FD matures, you will get back your principal as well as the accumulated interest.

A tax saving deposit is an advanced form of an FD. It includes all the functions of an FD with one additional benefit: it helps you save taxes. Thus, tax-saving deposits not only help you save and create a good corpus but also help you reduce your tax liability.

Unlike regular FDs, the amount that you invest in tax-saving fixed deposits is eligible for deduction u/s 80C of the Income Tax Act 1961. However, you will have to pay tax on the interest you earn from these deposits.

Here are some of the highlights of tax-saving fixed deposits:

a) Tax-saving: A lock-in period is included in FDs. This is usually every 5 years. During this period, you may not withdraw from your investments.

b) Premature withdrawals are not allowed.

c) The maximum investment you can make in your tax-saving FD is Rs 1.5 lakh.

d) The minimum amount needed to start an FD is Rs 1000.

e) You can receive interest at the following frequency: