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Investing in the ‘Tax Saving Deposit Scheme’ can be a great choice for NRIs & HUFs who cannot invest in PPF!

              The Finance Act, 2006 enlarged the scope of investments and allocations eligible for deduction under Section 80C of the Income-tax Act through the inclusion of ‘a term deposit for a period of 5 years or more in accordance with a scheme framed by the Central Government.’  Pursuant to this, the ‘Bank Term Deposit Scheme, 2006’ was announced vide Notification No.203/2006 dated 28th July, 2006.
The notable features of the scheme are as under:
  • An individual or Hindu Undivided Family (HUF) investing from a minimum of Rs.100 upto a maximum of Rs.1,00,000 in a 5 year term deposit with any scheduled bank would be eligible for deduction under Section 80C.

  • Two types of term deposits have been notified.  The single holder type deposit shall be issued to an individual himself or in the capacity of the Karta of his HUF.  The joint holder deposit receipt may be issued jointly to two adults or to an adult and a minor, payable to either or survivor.  However, the tax benefit under Section 80-C shall be available only to the first deposit holder. The facility of nomination will also be available.

  • Two significant restrictions placed under the Scheme need to be noted.  Firstly, the term deposit cannot be pledged to secure loan or as security to any other asset.  Secondly, such deposit cannot be encashed before the expiry of 5 years from the date of investment.  A special facility to transfer the deposit from one to the other branch of the scheduled bank shall, however, be available.

  • The rate of interest on the term deposit shall be in accordance with the rate fixed by the bank from time to time.  Currently, the interest offered on such deposits by different banks is around 8.5% to 9.5% per annum.  The choice of interest receipt may be either monthly or quarterly or in lump sum at the time of maturity.

  • Interest on the term deposit shall be liable to tax either on accrual or receipt basis, depending upon the method of accounting followed by the tax payer.  Payment of interest shall be liable to tax deduction at source either u/s.194 A for residents or u/s.195 for non-residents.


Investing in the 5 year bank term deposit for tax saving under Section 80C should be a great priority choice in the following cases:

  • For all Non-Residents or HUFs, who are not eligible to invest in the Small Savings Schemes of PPF or NSC. or for individuals

  • For Senior Citizens, though eligible to invest in PPF, who do not wish to log in for a 15 year PPF investment.  

  • For other individual taxpayers, who seek safe and regular return and for whom taxability of interest is not a major issue, in view of their applicable tax bracket.

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