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Investment restrictions on tax-saving fixed deposits, income tax
What are tax-advantaged savings accounts?
This is a fixed deposit that qualifies for a tax deduction under Section 80C of the Internal Revenue Code. In comparison to equities, such fixed deposits offer assured returns and are low risk. This feature is one of the reasons why they are one of the most popular tax-saving tools among taxpayers.
Who can afford to put money into these?
Individuals and Hindu Undivided Families (HUFs) are the only ones who can invest in tax-saving FDs under existing tax legislation. You can start a tax-saving FD account with any bank, including one with which you already have a savings account, as long as the bank allows you to do so without first opening a savings account.
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What method of taxation are they subjected to?
By investing in these FDs, an investor can claim a tax deduction of up to Rs 1.5 lakh per financial year. The interest generated on these fixed deposits, however, is taxable according to the investor’s tax bracket. As a result, such interest will be applied to your earnings and taxed at the rates that apply to your income bracket.
What method of taxation are they subjected to?
By investing in these FDs, an investor can claim a tax deduction of up to Rs 1.5 lakh per financial year. The interest generated on these fixed deposits, however, is taxable according to the investor’s tax bracket. As a result, such interest will be applied to your earnings and taxed at the rates that apply to your income bracket.
FD’s term of office
This sort of FD has a 5-year lock-in term and can only be liquidated after that. According to the Bank Term Deposit Scheme of 2006, you can’t get out of these FDs until they’ve been open for five years. Unlike regular FDs, which can be used as collateral or pledged to acquire loans, tax-saving FDs cannot be used as collateral or pledged.
What method is used to pay interest?
The interest rate on these FDs vary depending on the bank. Tax-saving FDs come in both cumulative and non-cumulative interest choices, which are typically offered by most banks.
Nomination option, type of holding
Individually or jointly, you can invest in a tax-saving FD. If the mode of holding is joint, however, the deduction under section 80C is only available to the first holder listed on the FD receipt. Nomination is also possible in these types of accounts.