There is now less than a week left for the end of the financial year 2021-22. In such a situation, many people are planning to invest in Tax Saving FD (5 Year FD). But to get the benefit of income tax exemption, you have to invest in it for 5 years. If you withdraw money before this, you will not get the benefit of tax exemption. If you are also planning to get a tax saving FD, then before that it is important for you to know that how much tax you will have to pay if you break the FD before 5 years.
First of all understand what is Tax Saving FD?
FDs of 5 years are called tax saving FDs. Investment tax exemption of up to Rs 1.5 lakh can be taken on investment under section 80C of the Income Tax Act. All banks offer tax saving FDs.
How much tax will have to be paid for breaking FD before 5 years?
You have availed tax exemption of Rs 1.5 lakh under Section 80C of the Income Tax Act for the year in which you have invested in these schemes. If you withdraw it before maturity, the entire amount will be added to your income in the year in which you have availed income tax exemption. Apart from this, the interest received will also be added to your income. After this, tax will be charged from you on the basis of the income tax slab you fall in.
Understand with example: Suppose in 2019 (2019-20) by making a tax saving FD, you have taken the benefit of tax exemption of 1.5 lakh rupees on annual income under it. But if you break it after one year instead of 5 years i.e. in 2020 itself, then the benefit of tax exemption on Rs 1.5 lakh you have taken will be added to your income of 2020 (FY 2020-21). After this, tax will be charged from you on the basis of the income tax slab you fall in.
What is section 80C?
Section 80C of the Income Tax Act is actually a part of the Income Tax Act, 1961. It mentions the investment channels in which tax exemption can be claimed by investing. Many people start investing before the end of the financial year to save tax. Under Section 80C of the Income Tax Act, you can claim a deduction of Rs 1.5 lakh from the total income. Understand it in simple language like this, you can save tax on Rs 1.5 lakh out of your total taxable income through section 80C.