Rule: If you break the tax saving FD ahead of time, you will have to pay more tax now, you need to invest for five years.
Under the Income Tax Act 80C, a rebate of up to Rs 1.5 lakh can be taken
You have to invest for a certain period of time to avail income tax exemption
Many people invest in a place where they can take advantage of tax breaks to save on income tax. Under this, investors invest in mutual funds in Equity Linked Investment Plan (ELSS), Unit Linked Investment Plan (ULIP) and Tax Savings FD. But to get the benefit of income tax exemption, you have to invest for a certain period of time. Withdrawals before that will not be tax deductible. Here you are told how much tax you will have to pay in such a situation.
Many schemes offer tax breaks
Many such schemes are run by the post office, in which you can avail tax exemption up to Rs 1.50 lakh under the Income Tax Act 80C. These include the National Savings Letter or NSC, Senior Citizen Savings Scheme (SCSS) and other schemes including term deposit. Investing in these schemes and other schemes including tax saving FDs requires an investment of up to five years to save tax.
Withdrawal of money ahead of time increases the tax liability
Suppose you invest in a Senior Citizen Savings Scheme with a maturity period of 5 years. If you withdraw money before maturity, you will get full interest on it. But your tax liability will increase. Similarly, ELSS also has 3 lockin periods. Even if you withdraw money 3 years ago, you will still have to pay full tax.
How much tax do I have to pay?
You have availed a tax deduction of Rs 1.5 lakh under Section 80C of the Income Tax Act on the year in which you have invested in these schemes. If you withdraw it before it matures, then the full amount will be added to your income in the year you did this, on which you have availed income tax exemption. Apart from this, the interest earned will also be added to your income. You will then be taxed on the basis of the income tax slab you fall into.
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