If you invest in a tax saving fixed deposit you can claim the amount invested up to Rs 1.5 lakh as a deduction from your income, as per current tax laws. The amount so invested is to be deducted from gross total income to arrive at taxable income. This deduction is allowed under Section 80C of the Income Tax Act. Section 80C also defines the limit of investment for which deduction can be claimed under it. Currently, this limit is fixed at Rs 1.5 lakh. Tax-saving fixed deposit is one of the one of the avenues currently approved for investment to claim the tax break under Section 80C of the Income Tax Act.

Below are some additional points you should be aware of about tax saving FDs.

1 . Only Individuals and HUFs can invest in tax saving fixed deposit(FD) scheme.

2. The FD can be placed with a minimum amount which varies from bank to bank.

3. These deposits have a lock-in period of 5 years. Premature withdrawals and loan against these FD's are not allowed.

4. A person can invest in these FD's through any public or private sector bank except for co-operative and rural banks.

5. Investment in Post Office Time Deposit of 5 years also qualifies for deduction under section 80 (C) of the Income Tax Act, 1961.

6. Post Office Fixed deposit can be transferred from one Post office to another.

7 . One can hold these FD's either in 'Single' or 'Joint' mode of holding. In the case the mode of holding is joint, the tax benefit is available only to the first holder.

8. The interest earned is taxable as per the investor's tax bracket and therefore, TDS is applicable. The interest on deposits is payable on either monthly/quarterly basis or can be reinvested.

9. Nomination facility is available for these FDs.

10. Most banks offer slightly higher interest rates on FDs to senior citizens (as compared to the interest rate offered on the same FD to a non-senior citizen). This interest rate differential exists for tax saving FDs also.