Indian Overseas Bank Tax Saving Fixed Deposit

Indian Overseas Bank (IOB) offers an attractive avenue for individuals to save tax while earning interest through its Tax Saving Fixed Deposits. This instrument, tailored under Section 80C of the Income Tax Act, allows depositors to claim deductions on their taxable income by investing in such FDs.

While these deposits lock in your funds for 5 years, ensuring a stable return, they also have certain tax implications on the interest earned. This article dives deep into IOB's tax-saving FDs, exploring its features, benefits, and associated tax nuances to help you make an informed decision.

The interest earned on all types of FDs is included in the total income and is taxable as per the prevailing slab rate. 

• As per section 80C of the Income-tax Act 1961, the investor gets an exemption of ₹1,50,000 in tax saver FD investment.
• For a senior citizen (Aged above 60 years), a deduction of up to ₹50,000 is available; for non-senior citizens, up to ₹40,000.
• If the PAN is not provided, then, in that case, 20% TDS is levied.
• In case your total income is below the taxable limit, i.e. Rs. 2.5 lakhs, you can avoid TDS by submitting Form 15G to the bank.
• For senior citizens, if your total income is below the taxable limit, you can avoid TDS by submitting Form 15H to the bank.

Now let’s take a look at the features a little bit in-depth:

• Duration: Tax Saving FDs usually come with a 5-year lock-in period, prohibiting any withdrawals during this time.
• Interest Offerings: Competitive interest rates are a highlight, and institutions like Federal Bank often provide an additional rate increment for senior citizens.
• Borrowing against FD: Given their fixed tenure, these FDs typically can't be used as loan collateral.
• Interest Disbursement: Different payout options, such as monthly, quarterly, or annual intervals, might be available. Some banks also provide reinvestment of the earned interest.
• Renewal Policy: Unless instructed otherwise, these FDs can be automatically renewed upon maturity for an equivalent period at the current interest rate.
• Early Withdrawal Charges: Withdrawals before the end of the lock-in period aren't permissible. Withdrawing after the lock-in but before FD maturity might invite penalties.
• Investment Limits: While there's a minimum deposit requirement to start a tax-saving FD, the upper limit typically remains INR 1.5 lakh annually, aligning with the 80C guidelines.
• Tax Deduction at Source (TDS): TDS might be deducted if the interest income surpasses a specified limit.

• Resident Individuals: Any individual who is a resident of India can open a Tax-saving FD with Indian Overseas Bank.
• Hindu Undivided Families (HUF): The Karta of the HUF can open a Tax-saving FD on behalf of the family.
• Minors: Minors can open an FD through a guardian.
• Single or Joint Accounts: Both single and joint accounts can be opened. However, the tax benefit under section 80C is usually available only to the first account holder for joint accounts.
• Existing Indian Overseas Bank Customers: Existing customers may find it easier to open a Tax-saving FD, especially online, given that their KYC details are already available with the bank. New customers might need to go through the full KYC process.
• Amount: The minimum amount for investment typically starts from a small amount (e.g., ₹100) but can go up to a maximum of ₹1.5 lakhs in a financial year to avail of the 80C benefit.

If you are not a prior customer or account holder in Indian Overseas Bank, here are some documents you must submit.

For Identity Proof and Signature Proof

• PAN Card
• Driving License
• Passport
• Voter’s ID
• Aadhar Card

For Address proof

• PAN Card
• Driving License
• Passport
• Voter’s ID
• Aadhar Card
• Utility Bill
• Bank account Passbook (Updated and should not be more than 3 months old)