Fixed deposits, interest rates and tax rebate

A fixed deposit with a bank can be renewed or extended multiple times on maturity for a similar duration for which the deposit was made initially. But do note that though the fixed deposit gets extended for the same period, the rate of interest doesn't remain the same. On renewal or extension, the fixed deposit gets re-invested at the rate of interest as applicable on the date of renewal or extension. For instance, Union Bank of India is currently offering an annualised return of 5.30 per cent on a fixed deposit of three years. However, do note that fixed deposits with a lock-in period of three years are not eligible for tax benefit under section 80C of the income-tax act. To be eligible for a deduction from taxable income, a fixed deposit must have a lock-in period of five years. In other words, only specific five-year tax-saving fixed deposits, which do not allow premature closure, are eligible for a deduction from taxable income under section 80C. So to avail a deduction for the assessment year 2023-24, you would have to invest in a similar deposit with Union Bank of India or any other bank before March 31,

This article was originally published on April 06, 2022.