What are the best tax-saving investment options?
Retirement planning is an important financial responsibility for everyone. In fact, financial planners suggest that retirement planning should begin the day when one starts earning. A new survey has found that 52% of Indians expect their children to provide them with financial stability post-retirement, and 28% are yet to start saving for retirement. Financial stability in old age is a common fear that engulfs many Indians. But retirement can no longer be a feared stage if you choose suitable investment options. It’s good if you have invested in equities, gold or bonds. Also, you need more than your PPF to achieve your post-retirement aspirations. Have you considered investing in Tax-Saving Fixed Deposits? Senior citizens should look at investment options that not only offer risk-free returns but also allow tax rebates because tax planning is a significant component of saving to create wealth in the golden years.
Income tax on fixed deposit for senior citizens
Senior citizens are not taxed on the interest earned up to ₹50,000 on fixed deposits in a financial year.
What is Tax Saving Investment FD?
Tax Saving FD is a type of deposit plan in which you can get tax deductions under section 80C of the Indian Income Tax Act, 1961. An investment made in a tax saver FD is eligible for a deduction of up to ₹1.5 lakhs.
Senior citizens should note that tax-saving fixed deposits offer a bunch of benefits like higher rates of interest, tax deductions, fixed interest rates and more. The bank will deduct TDS when the interest payable amount for senior citizens exceeds ₹50,000 in a fiscal year. One can open a tax saver FD either in a post office or a bank.
Benefits of Tax-Saving Investment Fixed Deposits
Given below are the key benefits of investing in tax-saving fixed deposits
- Your investment grows faster in a tax-saver FD when interest is compounded over five years.
- Fixed Deposits are considered safe as there are no risks attached to them.
- Fixed deposit returns are not market-linked, unlike mutual funds, which carry high market risk.
- Tax saver FD has a fixed interest rate, and the returns are guaranteed throughout the tenure.
- Senior citizens can get higher returns on tax-saving fixed deposit investments than regular customers.
- The investor can claim tax deductions of up to ₹1.5 lakhs on a tax-saver FD.
Pro tip: Make use of an online FD interest calculator to know your interest before you make an investment.
Points to remember when investing money in Tax Saving FD
Before investing in tax-saving fixed deposits, the following are essential tips to have in mind.
- Eligibility Criteria: Resident Indian citizens above 18 years of age are eligible to invest. Besides, a minor can invest jointly with an adult.
- Minimum Deposit: The minimum investment amount in a tax-saver FD differs across banks and NBFCs. At Shriram Finance, the minimum deposit amount is Rs.5000
- Lock-in Period: Lock-in period of 5 years applies for a tax-saving FD
- Loan Facility: A tax-saving fixed deposit does not offer a loan against your deposit.
- Premature Withdrawal: Tax-saving fixed deposits cannot be withdrawn before maturity.
- Investment Mode: You can avail of a tax-saving FD in any public or private bank. You can opt for an FD online from the bank or NBFC of your choice.
- For individuals, if the total interest on a fixed deposit in a financial year is more than ₹10,000, then TDS becomes applicable. The deduction for senior citizens is up to ₹50,000 under Section 80TTB of the Income Tax Act.
Most banks offer higher interest rates, usually 0.25% to 0.5%, for senior citizens investing in tax-saving FDs. However, Shriram Fixed Deposit offers interest rates of up to 9.05%* p.a., including additional interest of 0.50% p.a. for senior citizens and a special interest benefit of 0.10% p.a. for women depositors. Shriram Finance has consistently been the most preferred and popular NBFC in the market due to its trust and higher interest rates. One can claim an additional 0.25% p.a. interest rate benefit by renewing a matured fixed deposit. Your retirement can be better than your dreams when you choose suitable investment options that allow you to save on income tax.
1. Is tax-saving FD risky?
Tax-saving FDs are considered one of the safest investment options to minimize tax liability. The invested amount is safe, the returns are guaranteed, and the interest rate is also fixed.
2. What is the tenure of a tax-saving FD?
The lock-in period or tenure of a tax-saving FD is five years.
3. Which is better? Tax saver FD or PPF?
It depends on your financial goals. If you are looking to invest for the medium term, tax-saving FDs with a lock-in period of 5 years can be ideal, whereas a PPF has a lock-in period of 15 years. PPFs are ideal if you have a long-term goal in mind.
Tax saver FDs do not offer premature withdrawal or a loan facility, but PPF allows both features. Investing in PPF is a good choice if you may need to withdraw cash in the future.
- The interest on a tax saving FD can be paid out monthly, quarterly, half-yearly or annually.
- Investors can also reinvest the maturity amount by renewing the FD to get an additional interest rate.
- The interest earned is taxable as per the income tax bracket applicable to your taxable income.
Form 15G for normal citizens and, in the case of senior citizens, form 15H can be submitted to avoid paying the TDS.