Fixed deposits and ELSS

ELSS

• Equity linked saving scheme is a kind of mutual funds like diversified equity funds with Tax benefits. It is just like other tax saving instruments like National Savings Certificate and Public Provident Fund. Main advantage with ELSS is lock-in period is only 3 years while for NSC it is 6 years and for PPF it is 15 years. At the same time risk factor is high in ELSS.
• As per Income Tax act 80c investment up to Rs 1,00,000 are eligible for deduction from the gross total income hence reducing the total taxable income.
• To gain maximum benefit it’s recommended to invest regularly throughout the year by following systematic investment plan (SIP). This will take care of volatility in the index and invests a particular amount regularly into your fund for tax saving.
• However, there is a 3 year lock-in period for ELSS investments i.e. any investment that you make in ELSS schemes cannot be liquidated before 3 years. So, while opting for SIP in particular ELSS scheme the fund considers separate 3 year lock-in period for each SIP installment.

Fixed Deposit

• A Fixed Deposit is a financial instrument provided by Indian banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date.  The interest rate varies between 4 % and 11%.
• Interest earned on FD is taxable, if exceeds Rs10000 p.a.  Tax is deducted at source, from the interest on fixed deposits  after the Rs. 10,000 exemption.  
• However, if your income falls below the taxable limits, you may submit form 15H to request exemption
• TDS liability is determined at branch level. It takes into account interest on aggregate amount of deposits in a particular branch.  To gain advantage, you might want to consider opening different FDs at different branches or different banks
• Five year Fixed Deposits in a bank is eligible for a deduction under section 80c up to Rs 1 Lakh. However, the interest on this is not tax deductible.