Fixed deposits (FDs) have long been favored for stability and assured returns. However, beyond the comfort of steady interest earnings, there lies a valuable benefit that often goes unnoticed – tax deductions.
In this blog, we delve into the specifics of tax deductions on fixed deposits, exploring the intricacies, benefits, and considerations.
Tax deductions on fixed deposits are a critical aspect that can significantly impact your overall returns. In India, under Section 80C of the Income Tax Act, 1961, investors can avail themselves of tax benefits by investing in specific instruments, including fixed deposits issued by a scheduled bank in accordance with a scheme framed and notified by the Government of India for the purpose of Section 80C. This provision allows investors to deduct up to ₹1.5 lakh from their taxable income, thereby reducing their tax liability under the Old Tax Regime.
When you invest in a tax-saving fixed deposit with a scheduled bank which is issued in accordance with the scheme notified by the Government of India, the invested amount qualifies for deduction under Section 80C. Let's break down the mechanics:
Also read: Tax saving options other than section 80C under the old tax regime
Tax-saving fixed deposits, often referred to as Tax-Saver FDs, offer a dual benefit – assured returns and tax savings. By investing in these FDs, individuals can not only secure their savings but also avail of tax deductions under Section 80C under the old tax regime.
Suppose Mr. Sharma, a salaried individual, invests ₹1.5 lakh in a tax-saving fixed deposit. His taxable income reduced by Rs 1,50,000/- and if he is in the highest tax slab under the old tax regime, tax savings will be Rs 46,800/-By leveraging tax-saving fixed deposits, Mr. Sharma not only secures his investment but also saves significantly on taxes, thus augmenting his overall wealth accumulation.
Tax-saving fixed deposits offer the dual advantage of wealth accumulation and tax benefits. By strategically allocating your investments and leveraging Section 80C deductions, you can optimize your taxes savings However, the deduction discussed above, it is allowable only on the fixed deposit issued by a scheduled bank in accordance with a scheme framed and notified by the Government of India for the purpose of section 80C
[Disclaimer- The article is only for educational purposes and not to construct tax advice. The relevant provisions of the Income-tax Act may be referred to, for complete understanding.]
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