This fiscal, you can deposit ₹1.5 lakh in a bank term deposit and get income-tax benefits on it. This follows the Finance Ministry notifying a higher limit under bank term deposits for drawing income-tax benefit, as announced in the Union Budget. The new notification is effective from November 13.
For the current fiscal, one can now deposit ₹1.5 lakh against ₹1 lakh in a bank deposit to get tax benefits under Section 80C of the Income-Tax Act. For instance, if up to ₹1.5 lakh is put in a five-year term deposit, the amount will be deducted from income before calculation of personal income-tax.
In this year’s Budget, Finance Minister Arun Jaitley had announced enhancing of the tax investment limit under Section 80C to ₹1.50 lakh to boost domestic investment in long-term savings.
Under Section 80C, one can invest in, apart from bank deposits, instruments such as five-year National Savings Certificates (NSCs), Public Provident Fund (PPF), life insurance policies, equity-linked savings scheme (ELSS), contributions to the Employees Provident Fund.
The enhanced limit also includes principal repayment toward home loans. Since PPF is an independent scheme and has different features, the Government issued a separate notification on August 19, followed by the latest separate notification for bank term deposit.
Interestingly, ELSS has a lock-in period of three years, whereas a bank term deposit can be of five years for tax saving purpose. Also, though the returns are better, ELSS is riskier as it is affected by stock market volatility. But one positive about ELSS is that these do not attract tax. ELSS is like PPF where investors get EEE (exempt-exempt-exempt) benefit, which means no tax at the time of investing the money on accumulation and on withdrawal. Yet, bank deposits have one advantage — stable and assured returns.
The new notification has been issued under Bank Term Deposit Scheme 2006, under which, a deposit can be transferred from one branch of a bank to any other branch of the same bank, but not to another bank. Unlike a life insurance policy and NSC, the deposits cannot be pledged to get loan. Also, there is no provision for premature encashment
The deposit holder will have the facility to get interests either in lumpsum or every quarter/month. However, interest will be liable to tax deduction at source (TDS). Banks, such as State Bank of India, have already launched tax-saving term deposits.