July 11, 2017

Automatic Income Tax Form 16 Part A and B for F.Y.2016-17 with 5 Year Tax Saving Fixed Deposit (FD) under Section 80C


As per the Section 80C of the Income Tax Laws of India, we can do investments of up to Rs. 1.5 Lacs (Rs. 150,000 only) which would help us save taxes on an equal proportion of our salary. While there are various commonly known options to invest and save taxes under Section 80C (like investments done via PPF, EPF, Life Insurance etc.), one of the options which are not very commonly known for Section 80C investments is the 5-year Fixed Deposits.

With effect from Assessment Year 2007-08, investments done in Fixed Deposits for a fixed period of 5 years with a scheduled bank qualifies for deduction under section 80C.

1) Download Automated Income Tax Master of Form 16 Part A&B for F.Y.2016-17 [ This Excel utility can prepare at a time 100 employees Form 16 Part B for F.Y 2016-17] 

Following are the key features of this policy:


1/ The lock-in period for such a "Tax saving Fixed Deposit" is 5 years. You can not break this Fixed Deposit before 5 years tenure is over. This is different from any regular Fixed Deposit which can undergo a premature withdrawal.

2/ Interest rates for such a Fixed Deposit are decided by the respective banks, as is done for a regular Fixed Deposit.

3/ Tax Saving Fixed Deposit is available only through the banks. Company Fixed Deposits are not eligible for tax savings through Section 80C.

4/ A maximum of Rs. 1.5 Lacs is exempted under Section 80C, even though the amount of such a deposit can be more than Rs. 1.5 Lacs as well.


5/ No partial or premature withdrawal is allowed in such a Fixed Deposit. This is much like a Public Provident Fund (PPF) deposit, where the lock-in is permanent until maturity. 



6/ The one and only exception for premature withdrawal of such a Fixed Deposit are the death of the investor, in which case the nominee / legal heir can seek premature closure of the deposit with the bank. The rate of interest applicable in such a case varies from bank to bank.

7/ Sweep-in or overdraft facility in such a Fixed Deposit is not allowed.

8/ Only the first account holder, in case of joint accounts, is allowed the tax deduction benefits under Section 80C

9/ You get deductions on tax on the principle amount that you invest. The interest earned out of such a Fixed Deposit is fully taxable on an accrual basis, as is with any other fixed deposits. This is a point which many investors miss, and this definitely comes as a dampener if you compare this with EPF or PPF investments.

10/ NRIs can apply for this 5 year FD through their NRO accounts. However, as per Section 115D, the benefit under Section 80C is available to an NRI only if he/she has earned income other than investment income (interest) and long-term capital gains. 

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