Tax-saving FD is one of the tax saving instruments where one can invest to save tax under section 80C of the Income Tax Act.
If you have not made any tax-saving investments yet and are looking for a safe and easy way for saving tax then a tax-saving Post office fixed deposit could be a good option.
How to invest in Post office FDs?
- One can invest in this FD easily by visiting a bank,
- Filling the form and
- Giving a cheque. In fact, if you can place the FD in the same bank branch on which you are drawing the cheque then the transfer of funds will take place quickly and the investment can be done within a few hours.
Post offices offer several saving schemes across different time periods with different interest rates.
Current rates offered by Post offices as on 1st July, 2019 are
- For one-year time deposit, offering an interest rate of 6.9%.
- For time deposit for tenure of 2 and three years, offering an interest rate of 6.9%.
- For five year time deposit account, offering an interest rate of 7.7%.
The interest rates offered on these schemes are reviewed quarterly by the government.
Here are the 12 things to know about post office fixed deposit account:
- Eligible persons: Individuals and HUFs can invest in tax saving fixed deposit (FD) scheme by cash or cheque. In case of cheque, the date opening of FD account shall be the date of realization of cheque. Also, a minor can invest jointly with an adult.
- Investment amount: The minimum amount required to open a Post Office FD account is Rs. 200, which may vary from bank to bank. There is no maximum limit.
- Post office Fixed deposits are eligible for claiming tax benefit under section 80C of the IT Act is Rs. 1.5 lakh in a financial year.
- Lock-in Period: These deposits have a lock-in period of 5 years. For qualifying the tax benefit also, one is to keep invested for a period of 5 years as there is no tax benefit on the deposits with less than five-year tenure.
- Portability: Post Office Fixed deposit can be transferred from one Post office to another.
- Mode of handling: One can hold these FD’s either in ‘Single’ or ‘Joint’ mode of holding. In the case the mode of holding is joint, the tax benefit is available only to the first holder.
- Interest Taxable: At the end of the tenure of FD, the deposited amount and interest earned is taxable as per the investor’s tax bracket.
- TDS: In such FDs, TDS is also applicable; however, a person can avoid TDS on the interest earned by submitting Form 15G (or Form 15H for senior citizens) to the bank. For senior citizens, a new section 80TTB was also introduced, under which they can claim a deduction up to Rs 50,000 on the interest earned from deposits.
- Investing mode: A person can invest in these FD’s through any public or private sector bank except for co-operative and rural banks.
- Nomination facility: Nomination facility is available for these FDs at the time or after the opening of an account. However, no nomination facility is available in case the deposit is applied for and held by or on behalf of a minor.
- More than one account: A person can open more than one Post office saving deposits in one bank also.
- Guaranteed Returns: Returns on a tax saving FD are also guaranteed contractually by the bank or post office and are completely protected as the scheme is backed by the government.