Fixed Deposit Under 80C

Section 80C of the Income Tax Act provides tax-payers the facility to lower their taxable income by claiming the deduction while filing the Income Tax Return. Certain payments, contributions and/or investments by the assessee can be deducted from the gross salary so as to lower the tax to be paid in a financial year.

Important Features:

• Investment of up to Rs. 1.5 lakh in a tax saving FD can be claimed as deduction u/s 80C
• FD has to be made for 5 years, minimum
• To avail this deduction, PAN (Permanent Account Number) of the investors must be registered with the bank where they have booked the FD
• Tax saver FD comes with a lock-in period of 5 years, i.e. money cannot be withdrawn before 5 years from the date of booking the FD

Investment in tax saver fixed deposits can be done by the following category of people:

• Individuals who are resident Indians,
• Non-Resident Indians,
• Senior citizens,
• Members of Hindu Undivided Family

Remember that all the above-mentioned investors should have a PAN CARD for investing in the tax saver fixed deposits. If someone does not have a valid PAN CARD then they first need to apply for the same to invest in tax-saving fixed deposits.

However, tax-saving fixed deposit schemes allow tax benefits, interest earned on such FD is taxed at source (TDS). This means that while the initial deposit amount will be allowed as deduction u/s 80C, interest earned on this investment shall not be tax-free.

Let’s understand this with the help of the following example:

Mr Arya has invested Rs. 5 lakh in SBI tax saving FD for a period of 5 years on 1^st January 2020. He is offered an SBI FD rate of 6%. On 1^st January 2021, he earns a total interest of Rs. 30,682. He claims Rs. 1.5 lakh out of Rs. 5 lakh as 80C deduction when filing ITR for the year 2020-21. But along with that, the bank also deducts TDS @ 10%. This equals to Rs. 3,068 (approx.). Thus, the net interest income which he receives amounts to Rs. 27,613 (approx.) and not Rs. 30,682.

• The amount invested in tax saving fixed deposit is deducted from gross total income to arrive at the taxable income
• Investment in tax-saving fixed deposit is risk-free as they offer guaranteed returns and are completely secure
• The tax-saving fixed deposit offers nomination facility
• Interest payout options on monthly/quarterly/annual basis can be opted to have a regular income

As per the Income Tax Act, other than tax-saving fixed deposits, there are other investment options available too using which one can get tax benefits. Some of these options are:

• Post office fixed deposit – 5 years lock-in period
• Public Provident Fund (PPF) – 15 years lock-in period
• National Savings Certificate (NSC) – 5 years lock-in period
• Equity Linked Savings Scheme (ELSS) – 3 years lock-in period
• National Pension Scheme (NPS) – Till retirement of the depositor