Tax-saving fixed deposits (FDs) are among the savings choices that offer income tax benefits under Section 80C of the IT Act. Most banks today offer income tax benefits under a special category of FD or term deposit account.
One of the tax-saving financial instruments is the tax saving FD. You can invest in this instrument easily by visiting a bank, filling the required form and presenting a cheque for the said amount. You can also take advantage of this investment by getting it done online, provided you have access to net banking.
Compared to equity-based tax saving instruments such as ELSS schemes, tax-saving FD, being a debt investment, is considered safer. Also, the returns on these FDs are assured by the lender and fixed for the tenure of the FD. Additionally, among debt investments in which you can save on tax under Section 80C, tax-saving FDs have the lowest lock-in period of 5 years along with a periodic interest payout.
From state-run to private sector banks, several major commercial banks offer tax-saving FDs with interest rate ranging from 6.25% to 7.25% to the general public, while its about 6.70 to 7.75% to senior citizens. While this might sound lucrative, you must be aware of certain points listed below before you invest in tax-saving FDs:
Tax-saving FDs certainly offer security unlike equity-linked investments and they offer the benefit of saving taxes as well. While tax-saving FDs offer security, the returns are much lower compared to a market-oriented or equity-based investment which offer higher returns although with risks involved. The tax-saving FD form of investment should be a part of your investment portfolio but not the only option to save tax. It is advisable to have a diverse portfolio with different investment instruments that offer more returns.
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