If you invest in a tax saving FD and break it before 5 years, then you have to suffer double loss. Firstly, you have to pay penalty for pre-mature FD. And the second loss is in terms of tax.
Add informalnewz.com as a Preferred Source
Tax Saving FD: Usually when you make an FD, you do not get income tax benefit, but you get this benefit in 5-year FD. This is why it is also called Tax Saving FD. Under Section 80C of the Income Tax Act, tax exemption can be availed on investment up to Rs 1.5 lakh. You will get the option of 5-year FD in post offices and all banks.
But if you invest in a tax saving FD and break it before 5 years, then you have to bear double loss. Firstly, you have to pay a penalty for pre-mature FD. This penalty can be different in banks and post offices. Second loss has to be borne in the case of income tax. Know how here.
How much penalty is charged?
According to the information given on the post office website, if you break the FD after six months and before 1 year, then you do not get the interest of FD, but the interest of savings account is given on it. If 4% interest is given on savings account in post office, then you will also be given the same interest. On the other hand, if you break it after completion of 1 year, then for the full years of FD, 2% less interest is charged than the interest rate of FD and for the partial period of less than 1 year, the interest of post office savings account is given.
Understand by example
Suppose you break a 5 year FD after 3 years and 7 months, then you will get interest at the rate of 5.5% for 3 years because 7.5% interest is being given on 5 year FD and after reducing 2% it will be 5.5%. On the other hand, 4% interest will be given as interest on savings account for the remaining 7 months. In case of penalty, this rule is equally applicable on 2, 3 and 5 year FDs.
This will be the loss in terms of tax
If you break a 5 year FD before maturity, then the tax claim under section 80C will be rejected. In such a situation, that amount will be added to your current income and after this, income tax will be taken from you according to the tax slab.
Understand how with an example
Suppose you invested in Tax Saving FD in the year 2024 and in 2024 you took advantage of tax exemption of Rs 1.5 lakh on annual income under 80C. But in the year 2025, you broke the FD due to some need, then in such a situation, the Rs 1.5 lakh you have saved in income tax in the last financial year will be added to your income of 2025 (financial year 2025-26). After this, income tax will be taken from you according to the tax slab.
Add informalnewz.com as a Preferred Source
DISCLAIMER
We have taken all measures to ensure that the information provided in this article and on our social media platform is credible, verified and sourced from other Big media Houses. For any feedback or complaint, reach out to us at informalnewz@gmail.com
