How can You Save Rs 46800 with a Tax Saver FD?

In today’s world, financial planning is essential, especially for the salaried class. One of the most widely known investment options in India is fixed deposits. They are simple to comprehend and require no specific investment knowledge.

Fixed deposits provide a guaranteed return on investment and are an excellent choice for people who are not willing to take on the risk associated with the stock market. A Tax Saver FD is a type of fixed deposit account available to Indian citizens, which has tax benefits in addition to offering regular returns.

So, how can one save Rs 46800 with a Tax Saver FD? Let’s dive in.

Tax Saver FD and its benefits

A Tax Saver FD is a type of fixed deposit account that comes with a tax benefit. Under Section 80C of the Income Tax Act, 1961, investors can claim a tax deduction of up to Rs. 1.5 lakhs on the amount deposited in the Tax Saver FD account. The tax deduction is applied to the amount invested by the investor under this scheme.

The Tax Saver FD account has a minimum lock-in period of five years. It means that the amount invested cannot be withdrawn before five years. This feature promotes long-term financial planning and discipline.

Additionally, the interest earned on the Tax Saver FD account is also taxable at the investor’s income tax slab rate. However, the investor has the option to reinvest the interest earned, which is not taxable under Section 80C.

FD Interest Calculator and its significance

An FD interest calculator is a valuable tool that helps investors to determine the interest earned on their fixed deposit investment. It is imperative to know the interest earned, and the maturity value before investing in a fixed deposit account.

The FD interest calculator takes into consideration the deposit amount, deposit tenure, and the interest rate provided by the bank on the fixed deposit amount. By providing this information, the calculator generates the exact interest earned and the maturity value upon maturity.

Calculating Tax Savings with Tax Saver FD

Let’s take an example of an investor, Mr. Kumar, who deposits Rs.1,50,000 in a Tax Saver FD scheme for five years at an interest rate of 6.5%, compounded annually. The interest earned on the FD account will be Rs.60,978, and the maturity value of the investment after five years will be Rs.2,10,978.

As per Section 80C, Mr. Kumar can claim a tax deduction of up to Rs.1.5 lakhs on the amount invested in the Tax Saver FD account. Therefore, the taxable income of Mr. Kumar will be reduced by Rs.1,50,000, which will lower the tax liability.

Assuming Mr. Kumar falls under a tax bracket of 20%, he will save Rs.30,195 in tax payment. Therefore, the total tax savings of Mr. Kumar with the Tax Saver FD account will be Rs.30,195 + Rs.60,978, which equals Rs.91,173.

Conclusion

A Tax Saver FD account proves to be useful for investors who are looking for a safe and risk-free investment option with long-term planning. It not only provides guaranteed returns but also yields tax benefits. Calculating tax savings with a Tax Saver FD account can help an investor plan financial investments effectively.

However, investors should note the lock-in period of five years, after which the investor can withdraw their funds or renew the deposit for another five years. Further, the interest earned on the Tax Saver FD account is subject to tax, but the principal amount invested qualifies for tax deductions.

In conclusion, before investing in any financial product, investors must understand their investment options and gauge all the pros and cons of trading in the Indian financial market.

Summary:

Tax Saver FD is a type of fixed deposit account that offers tax benefits under Section 80C of the Income Tax Act, 1961. With the help of an FD interest calculator, investors can determine the interest earned, and the maturity value before investing in a fixed deposit account.

Suppose an investor deposits Rs.1,50,000 in a Tax Saver FD scheme for five years at 6.5% interest rate compounded annually. In that case, the investor can claim tax deductions up to Rs.1.5 lakh under Section 80C. Assuming the investor falls under a 20% tax bracket, they can save Rs.91,173, including the tax savings of Rs.30,195 on the amount deposited and the interest earned on the investment.

Investors must comprehensively analyze and evaluate their financial planning and plan investments accordingly, considering all the pros and cons of trading in the Indian financial market.