How to claim tax deduction on fixed deposits – section 80C

Fixed deposits or FD is one of the most favored investment instruments in India. In a FD scheme, an investor can invest money for a fixed tenure at a predefined interest rate. As it’s invested for a fixed term, it’s also known as term deposit.

Different types of FD schemes are available in India to invest for a fixed term. However, IT act allows tax deduction only on those fixed deposits which comes with a lock-in period of 5 years. These FDs are popularly known as tax saving fixed deposits.

As per the present tax laws, an individual can claim tax deduction of up to Rs 1,50,000 for the amount invested in a FD with lock-in period of 5 years. The amount invested in a 5 years FD has to be claimed as tax deductions under section 80C out of the gross total income to arrive at the taxable income.

To get eligible for tax deduction, assessee can invest in any fixed deposits of public or private bank. 5 years time deposit with a post office also qualifies for tax deduction under section 80C.

However, co-operative banks and rural banks are not eligible.

Interests earned on these Fixed Deposits are taxable based on the slab rates applicable to the individual. Bank has to deduct TDS on your interest income at the rate of 10%. You can refer our article on TDS on Interest on Fixed deposits.

If any amount including accrued interest has been withdrawn by the assessee from his accounts before the expiry of 5 years from the date of deposit, the amount so withdrawn shall be deemed to be the income of the assessee. Such amount will be liable to tax in the year of withdrawal.

You can also invest in public provident fund or life insurance premium to get tax benefits.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.