Tuesday, 24 January 2012

Tax Savings Fixed Deposits

Many of us think about the Tax Saving when we get the wake up call. No different is my friend Rajesh. He wakes up the day he gets an email from his HR/Finance detailing the last date for submission for 80C- investment proof. This is the same story every year. Every time this happens, Rajesh promises himself to be more disciplined about tax savings from next year onwards:)     
Well all said and done, Rajesh has very little time in hand. He has no time to analyze the ELSS options. Last year he brought a PPF form but never submitted it.  The Need of the hour for Rajesh is to save tax and that too immediately. Rajesh’s taxable income after necessary deduction falls within 10% bracket.
There are many Rajesh around us, who are in rush to invest and reduce their tax burden at the last minute.  Well for people like Rajesh and Senior Citizens who are in lower Tax Bracket,  Tax Saving FD’s are like boon in disguise.
Let us dive in:
  • Tax Saving FD’s offered by Banks are safe and secured.
  • They have lock-in period of 5 years and prematurity is not allowed.
  • Investment up to 1 lakh is exempted from tax under -80C.
  • Interest earned from these Tax Saving FD’s is fully taxable.
  • Nomination Facility is available.
  • Overdraft, Loan, Sweep-in facility are not available for Tax Saving FD’s
  • In case of Joint account, only the first holder can avail the tax exemption.
  • Senior Citizen enjoys a slightly higher rate.
  • Tax Saving like other FD’s are secured by Deposit Insurance & Credit Guarantee Corporation(DICGC)
  • TDS is applicable if the interest exceeds 10,000 per financial year
 3 Banks- offering best interest rates for Tax saving FD’s
Non Senior Citizen
Senior Citizen
Dhanalakshmi Bank
Tamilnad Merchantile Bank
Oriental Bank of Commerce
 ** Banks keep changing interest rates. Please call up the bank to confirm.
Take Away:
  • For Rajesh or many people like him who are in lower tax brackets and are looking for last minute options for reducing their tax burden. Tax Saving FD’s are like life saving Pills.
  • Tax Saving FD’s is ideal for Senior Citizen with lower tax brackets. (10.6% is good deal to grab).  If a senior citizen invest 60 K invested in Dhanalakshmi bank mature to approx 1 lakh (pre-tax)
  • For people who are in higher tax brackets, Tax saving FD’s is not the right choice. They should invest in PPF which will give better returns (as returns from FD are taxable and PPF returns are tax free). Click here to know about PPF
What would be your suggestion to Rajesh? Leave your opinion


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