how much interest on fd is tax free ? or which fd is tax free?

Anjan Biswas

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how much interest on fd is tax free ? or which fd is tax free?

Fixed deposits (FDs) have long been a popular choice due to their stability and guaranteed returns. However, not all FDs offer tax exemptions. This article “how much interest on fd is tax free ? or which fd is tax free?” aims to shed light on tax-free FDs, helping you make informed decisions about your investments.

how much interest on fd is tax free ? or which fd is tax free?

What is a Tax-Saving FD ?

A fixed deposit account that offers a tax deduction under Section 80C of the Income Tax Act, 1961. Any investor can claim a deduction of a maximum of Rs.1.5 lakh per annum by investing in a tax-saving fixed deposit account. The minimum investment that can be made in a tax-saving fixed deposit is Rs 100, whereas the maximum limit is Rs 1.5 lakh per financial year. The minimum tenure for a term deposit under the Tax Saving Scheme is 5 years. 

Who can invest in tax-saving FDs?

Resident Indian citizens, senior citizens, HUFs, and NRIs can invest in tax-saving fixed deposits.

When are you liable to pay tax on FDs?

If the interest on FD is more than 40,000, then PAN users would be liable to pay 10% as tax and non-PAN users would pay 20% tax on interest earned. This interest would be deducted as TDS (tax deducted at source) at the time of credit of annual interest. The upper limit of 40,000 is not applicable on aggregate earnings but is for individual FDs (in the case of senior citizen the threshold is Rs.50,000).

Benefits of Investing in Tax-Free FDs

Investing in tax-free FDs offers several advantages, including:

  1. Tax Efficiency: By opting for tax-free FDs, investors can minimize their tax liability and retain a higher portion of their interest income.
  2. Stability and Security: FDs are known for their stability and security, making them a preferred choice for risk-averse investors. Tax-free FDs provide the added benefit of tax savings without compromising on the security of the investment.
  3. Retirement Planning: Senior citizens can strategically invest in tax-free FDs to generate a steady income during their retirement years, as the tax benefits can help enhance their overall returns.

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