FD Rules Update: If you invest in a tax saving FD and break it before 5 years, then you have to bear double loss. First, you have to pay a penalty for pre-mature FD. And the second loss has to be borne in terms of tax.
FD Rules Update: Usually when you get an FD, you do not get income tax benefit, but you get this benefit in 5-year FD. For this reason, it is also called Tax Saving FD. Under Section 80C of the Income Tax Act, tax exemption can be availed on investment up to Rs 1.5 lakh. You will get the option of 5-year FD in post office and all banks.
But if you invest in a tax saving FD and break it before 5 years, then you have to bear double loss. First, you have to pay a penalty for pre-mature FD. This penalty may vary in banks and post offices. The second loss has to be borne in the case of income tax. Know how here.
How much penalty is charged?
According to the information given on the post office website, if you break the FD after six months and before 1 year, then you do not get the interest of FD, instead the interest of savings account is given on it. If 4% interest is given on savings account in post office, then the same interest will be given to you also. Whereas, if you break it after the completion of 1 year, then for the full years of FD, 2% less interest is charged than the interest rate of FD and for the partial period of less than 1 year, the interest of post office savings account is given.
Understand with an example
Suppose you break a 5 year FD after 3 years and 7 months, then you will get interest at the rate of 5.5% for 3 years because 7.5% interest is being given on 5 year FD and after reducing it by 2% it will be 5.5%. At the same time, interest of savings account i.e. 4% interest will be given for the remaining 7 months. In the case of penalty, the same rule is equally applicable on 2, 3 and 5 year FDs.
This loss will be there in terms of tax
If you break a 5 year FD before maturity, then the tax claim under section 80C will be rejected. In such a situation, that amount will be added to your current income and after this, income tax will be taken from you according to the tax slab.
Understand how with an example
Suppose you invested in Tax Saving FD in the year 2024 and in 2024 you availed tax exemption of Rs 1.5 lakh on annual income under 80C. But in the year 2025, you broke the FD due to some need, then in such a situation, the Rs 1.5 lakh you have saved in income tax in the last financial year will be added to your income of 2025 (financial year 2025-26). After this, income tax will be taken from you according to the tax slab.
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