Should I Buy 5 Year Tax Saving Bank Fixed Deposit Scheme?

By | February 23, 2017

Tax saving Bank Fixed deposit schemes are one of the most popular way of investment through which people mostly prefer to save taxes on last minute. Yes, if you have not planned your investments and how to save income tax properly, then like many people you might be on rush to save taxes on last minute at the end of financial year. In that case, bank FDs are one of the easiest way one can invest and save taxes under section 80C.

But do you know that investing in tax saver bank FDs may not give you good return or you can say a better benefit compared to other investment options in this category, even if you have save some taxes in short term. In this article I will be helping you to understand various facts and features including advantages & disadvantages of such 5 year bank FD schemes and also share the top 5 best tax saving bank FDs with highest interest rates 2017.

Key features of 5 year Tax Saving Bank FDs

These fixed deposit schemes are different from normal 5 year bank FDs. So if you want to open bank FD for saving tax, then you have to tell specifically in bank. Otherwise you may end up opening the normal FD where no income tax benefit is available.

You can get income tax benefit under section 80C of income tax act.

These FDs have a lock-in period of 5 years and you can’t break or withdraw such FDs before maturity. That means this is not a liquidity investment option.

You can open such FDs almost every bank in India.

The interest rate at which the FD is opened will be valid for the complete 5 year term, even if the interest rates fall or rise in future. In fact such schemes will clearly tell you how much money you will get after 5 year irrespective of any kind of impact on it.

The Min 100 Rs FD and then multiply of Rs 100. There is no maximum limit, but no point to go more than Rs 1.5 lakh in case you are planing to consume the entire 80C bracket with such FDs.

You can’t apply loan against such FD schemes, but in case of normal FD you can ask for loan against FD.

The worst part of tax saver Bank FD is that the interest is taxable, but the principle is tax free.

You have to declare about the interest income while ITR under the Head Income from other section => Bank interest section.

This income will club with all your other savings account interest income and if that increase Rs 10,000 limit as per income tax section 80TTA, you have to pay taxes as per tax slab

There is TDS applicable on maturity of such bank FDs. If provided PAN 10% tax, not provided PAN and interest more than 10,000 then TDS 30%. You have to Fill form 15G / 15H also.

List of Best Tax Saver Bank Fixed Deposit Schemes 2017

I have already shared a detailed post on the list of 5 year tax free fixed deposit schemes from Bank.

Should I invest In Tax Saving 5 Year Fixed Deposit Scheme of Banks?

The biggest disadvantage of such FDs are the liquidity factor and the taxable interest. If your interest income is more than 10,000 then there is no benefit from such FDs as your interest will be taxable as per your current tax slab and if you are on higher slab that means you have to pay 30% tax. In that case the actual / net return from such FD schemes are very low. Another thing is interest rate is not compounded which is also make this product very weak. So, if you are not looking to experiment much, don’t want to take much risk on investment & happy to get a guaranteed return, don’t have interest income of Rs 10,000 / year and looking for best alternative of your savings account then you can go for such FDs and off-course save income tax.

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