5 year FD is called Tax Saving FD. This FD is eligible for tax benefit under 80C. But if you break this FD before 5 years, you can incur a huge loss.
Fixed Deposit usually does not provide tax benefits, but if you have invested money in FDs with a tenure of 5 years or more, then you can avail tax benefits. FDs with a tenure of 5 years or more are called tax free FDs or tax saving FDs. Usually, whenever you break an FD before time, you have to pay a penalty on it, but if you break a Tax Saving FD before maturity, then you may suffer a huge loss. Know more about this here-
This loss will occur if FD is broken
CA Mohan Kumar, an expert in tax matters, says, you can get the option of tax saving FDs in all banks. Tax benefits are available on these FDs under 80C. A tax deduction of Rs 1.5 lakh can be claimed in this. However, keep in mind that the income received on FD is taxable. On the other hand, if you break the FD before maturity, then the tax claim under section 80C will be rejected. In such a situation, that amount will be added to your current income and after this, income tax will be taken from you according to the tax slab. In this way, breaking the FD before time can be a double blow. The interest income from FD is taxed under ‘Income from Other Sources’ in your income tax return.
He says, interest earned but not paid on FDs also becomes a taxable liability for that year. Depositors are advised to show interest income on all FDs in the tax return. Track TDS from the bank and match it with Form 26AS. Therefore, while doing financial planning, definitely consider the tax impact on FD.
Understand how with an example
Suppose you invested in Tax Saving FD in the year 2023 and in 2023 you took advantage of tax exemption of Rs 1.5 lakh on annual income under 80C. But in the year 2024, if you broke the FD due to some need, then in such a situation, the Rs 1.5 lakh you have saved in income tax in the last financial year will be added to your income. After this, income tax will be taken from you according to the tax slab.
Where is the FD interest rate available?
- Bank of Baroda: 6.50%
- SBI: 6.50%
- PNB: 6.35%-6.50%
- Canara Bank: 6.70%
- Union Bank: 6.50%
- Indian Overseas Bank: 6.50%
- Post Office TD: 6.9% to 7.5%
- HDFC Bank: 7.00%
- ICICI Bank: 7.25%
- Axis Bank: 7.00%
- IndusInd Bank: 7.25%
- Kotak Bank: 6.20%
- Yes Bank: 7.25%
- DCB Bank: 7.40%
- RBL Bank: 7.10%
- IDFC Bank: 7.00%
