Lock-In Periods for Tax-Saving Fixed Deposits: What You Need to Know

Saving your hard earned money is crucial to build a secure future. And one of the ways to achieve this is with the help of Fixed Deposit in India. It is an excellent way to save money and taxes at the same time.

While a regular or standard Fixed Deposit account allows you to choose the tenure, Tax-Saving FD comes with a lock-in period. In this article, we shall provide you with a detailed guide on the lock-in periods of Tax Saving FD, its features, benefits, etc.

What is Tax-Saving FD?

Tax-Saving FD is a type of Fixed Deposit account where money can be deposited for a fixed period, which also allows you to claim a tax deduction. By investing in this type of FD account, you can claim tax benefits on investments of up ₹ 1.5 lakh under the Income Tax Act.

Some notable features of Tax-Saving FD are as follows:

Features

• It comes with a fixed lock-in period of 5 years.
• One can deposit a minimum amount of ₹1000 and a maximum amount of ₹ 1.5 lakhs.
• By investing in Tax-Saving FD, you can claim a deduction under section 80C of the Income Tax Act.
• The interest earned is subject to taxation at source.
• There is no overdraft or loan facility with this type of deposit.
• It does not support an auto-renewal option.
• You can set the interest pay-out options to quarterly, monthly, etc.
• Tax-Saving FD accounts can be held by a single person or two people jointly.

Tax-Saving FD: Lock in period

• One of the most distinguished features of the Tax-Saving FD is the lock-in period. It comes with a five-year lock-in period to ensure discipline savings and continuous returns.
• Under this type of Fixed Deposit in India, there is no option to withdraw the amount prematurely. Withdrawals are only allowed once the 5-year lock-in period is over.
• The lock-in period provides you with financial securityas your money is safe in the FD account.
• The rate of interest is fixed during the lock-in period, providing you with assured returns over the tenure of the deposit.

Benefits of tax saving Fixed Deposit in India

• High Returns: You can earn a higher rate of interest than other types of accounts.
• Secure Investment: The Tax-Saving FD is not affected by market fluctuations. Thus, it is a secure investment option.
• Flexible Deposit: There is no specific amount that you must invest.You can choose to deposit any amount of your choice, depending on your liquidity and financial situation.
• Tax Benefit:You can claim tax deductions up to ₹1.5 lakh per year under the Income Tax Act. Thus, it reduces your tax liability and results in savings.
• For All Age Groups:Young adults, senior citizens, Hindu Undivided Families and minor individuals (joint holding with an adult) can park their money in this type of Fixed Deposit account. Thus, it benefits all citizens irrespective of their age group.

 Who should invest in Tax-Saving FD?

• Retired individuals:If you are a retired citizen with zero risk appetite, then the Tax-Saving FD is the best investment option.
• Who wants to reduce tax liability:It is also an excellent option for individuals who want to save on taxes.

Summary

Tax-Saving FD comes with a 5-year lock-in period and is a fruitful investment channel with zero risk and stable interest rates. Thus, it is a safe investment option for all individuals, which also results in tax savings. With no premature withdrawals, it instils disciplinary investment habits.