Tax exemptions on bank deposits

The government today notified the Bank Term Deposit Scheme, 2006, under which an individual or a Hindu undivided family can invest up to Rs 1 lakh per year in term deposits of scheduled banks to claim benefits under Section 80C of the Income Tax Act.

However, the investment in these term deposits, along with investments in other saving schemes, would be subject to the overall ceiling of Rs 1 lakh for the purposes of tax benefit under Section 80C, an official release said.

The term deposits will be of two types "" single holder or joint holder. In the case of joint holder deposits, tax benefit will be available only to the first holder of the deposit.

The maturity period of the deposit will be five years. The rate of interest on the deposit will be the same as what the bank is offering at that moment.

Interest on the deposit shall be liable to tax either on accrual or on receipt basis, depending upon the method of accounting followed by the investor.