Fixed deposits (FDs) can be one of the safest options for senior citizens to save and grow their money. It does not involve any market risk, and you will get a predetermined amount of money after maturity due to the fixed interest rate.
Nonetheless, the interest earned on the fixed deposit comes under the ambit of tax liabilities. However, you can get a tax-saver FD to reduce your tax obligations on the interest accrued on your savings.
What Is a Tax-Saver FD?
Tax saver FD refers to a type of fixed deposit that comes with a pre-specified lock-in period of 5 years. Still, you can choose an extended maturity period for the deposit. You will be able to withdraw your money only after the lock-in period ends.
As the name suggests, you can reduce your tax obligations by opening this type of FD, regardless of what your age is. However, you can enjoy more tax deductions if you are a senior citizen.
How a Tax Saver FD Helps Senior Citizens to Increase Earnings?
Following are some of the reasons why senior citizens enjoy more earnings on tax-saver FDs:
- More Attractive FD Interest Rate
Financial institutions let you enjoy higher interest rates on the tax-saver FD for senior citizens. As a result, you can earn more on your deposits. Nevertheless, you should ideally compare the interest rates of the different financial institutions before submitting your application form. This way, you can identify the institution that offers a more attractive interest rate. This way, you can increase your chances of earning more.
- Higher Tax Benefits
Under Section 80C of the IT Act of India, you can get tax benefits on interest earned on a fixed deposit. It lets you reduce your taxable income by up to Rs. 1.5 Lakhs per year. Furthermore, being a senior citizen, you are also eligible to leverage tax deductions according to Section 80TTB of the IT Act of India. It lets you claim a tax benefit of up to Rs. 50,000 on your fixed deposit earnings. Thus, you can cumulatively reduce your tax liabilities for up to Rs. 2 Lakhs and complement your earnings to some extent.
In this regard, you also need to know that financial institutions apply 10% Tax Deducted at Source or TDS on senior citizens’ total FD earnings if this amount is higher than Rs. 50,000. As a result, you will get a lower amount as your pay-out. You can submit a duly-filled Form-15H to avoid this TDS and bag the total accrued interest.
Besides the higher interest rate and tax benefits, you can enjoy several other advantages by opting for a tax-saver fixed deposit.
Features and Benefits of a Tax-Saver FD
Following are some major benefits of this type of fixed deposit:
- The fixed deposit interest rate remains constant throughout the maturity period. It does not follow the stock market volatility.
- You can get a competitively higher interest rate on this type of fixed deposit.
- Financial institutions also let you open both single as well as joint accounts for the tax-saver fixed deposit. In this scenario, only the primary account holder will be able to reap the tax benefit.
- You can choose a monthly, quarterly or lump-sum pay-out option for withdrawing your funds after maturity. The monthly pay-out option can serve as your complementary income source.
How to Open a Tax Saver FD
Here is a step-wise guide to open a tax-saver fixed deposit online:
Step 1: Visit the official website of your financial institution
Step 2: Log in to your user account by entering the required credentials
Step 3: Navigate to the section for deposits
Step 4: Click on the option for ‘Tax-Saver FD’
Step 5: Mention the amount you will keep on your fixed deposit account
Step 6: Tap on ‘Invest Now’ or an option equivalent to it
After this, you will successfully place your request to open a tax-saver fixed deposit.
If you are not comfortable with the online application process, you can open a fixed deposit account by following the steps mentioned below:
Step 1: Go to the nearby branch of your preferred financial institution
Step 2: Request the application form meant for opening the tax-saver fixed deposit account
Step 3: Fill in the application form with all the necessary details
Step 4: Submit the filled-in application form and complete the paperwork
Step 5: Draw a cheque or demand draft in favour of your fixed deposit
After you complete these steps, the financial institution will open the fixed deposit account for you.
Documents Required for a Tax Saver FD
Following are some of the documents you will need to submit while opening a tax-saver fixed deposit account:
- Identity Proof: Voter ID, driving licence, PAN card, Aadhaar card, passport, etc.
- Residential Proof: Electricity bill, passport, PAN card, telephone bill etc.
Things to Look for to Increase Earnings on Tax-Saver FD
Here are some of the aspects you need to consider while availing the fixed deposit facility to increase your earnings from it:
- Opt for a Longer Maturity Period
When you choose an extended maturity period, the interest rate works for a prolonged time. As a result, the deposited amount keeps on accruing interest over a longer duration. As a result, you get to enjoy more earnings on the fund.
- Look for Better Interest Rates
You also should ideally compare different financial institutions based on their interest rate. You need to choose an institution that provides a fixed deposit facility at a higher rate of interest.
- Abstain from Premature Withdrawal
In a tax-saver fixed deposit, you cannot withdraw your deposited amount before the lock-in period of 5 years. However, if your maturity period is more than 5 years, and you choose to withdraw the fund before the term, you can do so by paying a penalty. This can significantly reduce your total profit on the FD.
To conclude, tax-saver FDs can be quite beneficial for senior citizens. They can secure a comparatively higher interest and enjoy more tax benefits on the earned interest. Further, since the maturity amount stays fixed, it can help them grow money in a risk-free way.