Investment in Fixed Deposits To Save Taxes

Fixed Deposit serves as one of the tools of investment planning. It is like a term deposit which allows depositing money for a fixed period of time. Fixed deposit provides future benefit to the individual but does not hold any tax benefit. But in 2006, the government widened the scope of fixed deposit and introduced the tax benefits to the five-year tax saver deposits which enable us to earn high return and save taxes as well.

The individual gets deduction upto Rs. 100,000 u/s 80C of the Income tax act, 1961. These tax free fixed deposits have a lock-in periods of five years and depositors does not have an option of pre mature withdrawal.

These deposits cannot be pledged as a security for any loan from bank and the banks do not offer any overdraft facility on such deposits. Additionally, like any other Fixed Deposits, tax saving fixed deposits does not have the sweep-in facility i.e. your fixed deposit account cannot be linked to your savings account whereby the surplus funds in the savings account can be automatically invested in the fixed deposit account.

When two people jointly hold a tax saving fixed deposit, only the first holder will enjoy the tax benefits under section 80C of the act. Tax benefit is not available to the second holder.

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