Seven Points One Must Know Before Investing In FD for Deduction u/s 80C!
1. Who can buy these FDR?
Individual or HUF can get deduction u/s 80C for buying Fixed Deposit in any schedule bank .
2. What is lock in period in case of FDR?
Five years without any facility for premature encashment.So the money is certainly stuck for five years .
3. How much deduction can be claimed through bank's FDR?
The maximum deduction one can avail is of Rs 1 Lakh. But that deduction is within overall limit of Rs 1 lakh for section 80C . What it means that if you have PF deduction of Rs 40000 in a year and you made a FDR of Rs 1 lakh , you can claim only Rs 1 lakh of deduction and not Rs 1.4 Lkah.
4. Can you get deduction u/s 80c for making FD in minor or in spouse name ?
The deduction u/s 80C is allowed only in name of person who actually invest in his own name not in any family members name. Therefore, if one wants to invest for spouse or minor , at best he can buy the FDR jointly and keeping his name as first holder.
5. Can you take loan against the FDR ?
These FDRs can not be pledged for the purpose any loan or advance. which means no loan can be taken against these FDR.
6. How will the interest on the FDR be taxed?
If you follow mercantile system ,the interest on FDR is taxable on accrual basis. If not, it will be taxed on receipt basis. Readers are advised to declare the income on accrual basis to spread the burden of income over period of five years.
7. Is better than PPF or NSC ?
The restriction that no loan can be availed from these FDR make it less attractive than NSC. Interest on PPF is tax free whereas FDR is taxable. At present , FDR is certainly not a better alternative than PPF or NSC.
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