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While guaranteed return benefits from FDs make them preferred investment options, there is an important tax component to them that’s often overlooked. Simply put, the extra money you earn as interest from FDs is added to your annual income. Thus, these earnings are taxable like all other components of your annual income. While you are liable to pay tax on your fixed deposit interest earnings, there are ways to bypass this liability to a certain extent. Opening a tax-saving FD account is the simplest way to save tax on FD interests.


A tax-saving FD gives you access to tax rebates of up to ₹1.5 Lakhs (annually) under Section 80C of the Income Tax Act 1961. However, to enjoy such fixed deposit tax exemptions, you will have to lock in your lump-sum deposit for at least 5 years. If the 5-year lock-in period is not an issue for you, then the easiest answer to the question ‘how to save tax on FD interest?’ is a tax-saving FD!

How to Save Tax on Fixed Deposit Interest?

You can safeguard your returns from income tax deductions quite easily. Here’s how you can save tax on FD interest earnings: 

  • Form 15G/15H

To enjoy tax exemptions on your fixed deposit earnings, you need to submit a self-declaration form or TDS waiver stating that you have zero taxable income. Doing so will prevent the bank from deducting income tax on your fixed deposit interest. Regular tax saver FD holders must submit Form 15G, while senior citizens have to submit Form 15H to avail of such TDS exemptions.  

  • Distributing FD

You can also bypass TDS deductions by investing your money wisely. For instance, if you divide the total deposit amount between two different banks, you can easily prevent the earnings from exceeding the ₹40,000 mark. This simple strategising will diffuse the dilemma of how to save tax on FD interest quite easily.

  • Timing Your FD Right

A little foresight and planning can also help waive taxes on your fixed deposit earnings. Since TDS is calculated every March, you can align your deposit timings in a way that will prevent interest earnings from crossing the ₹40,000 benchmark. For instance, a 1 year FD of ₹2 Lakhs at 9% interest rate can be booked in September as the fiscal year closes on the 31st of March. By doing so, the interest will be split into two and TDS can be avoided.

  • Splitting Your FD

Another easy solution to the ‘how to save tax on FD interest’ is splitting FD deposits between two accounts. In other words, you can start a tax-saving FD under your own account and another one under a HUF account. Since both FDs will be classed under separate accounts, interest accruing on them won’t be calculated as cumulative earnings. 

Features of a Tax-saving Fixed Deposit

Tax benefits

U/S 80C of the IT Act, you can enjoy tax deductions on the invested amount according to the prevailing limits and tax norms. The tax benefits under this section are only applicable in the investment year and not for the entire tenor of the FD.

5-year lock-in period

The invested amount is locked in for 5 years. You can choose a longer tenor if you want, but the investment amount will be locked in compulsorily for the first five years.

No premature withdrawals

You cannot withdraw the invested amount - either completely or partially before five years.

Taxable interest

The interest earned t is taxable under relevant tax provisions and norms.

No auto-renewal

Auto-renewal is not applicable. The maturity amount is either disbursed to the linked bank account or paid as a demand draft (DD).

Fixed rate of interest

The rate of interest remains the same for the entire tenor.

Multiple payout option

You get to choose the basis on which the interest payout is credited to your account i.e., on a quarterly,  monthly or annual basis.

Single/Joint accounts

You can invest in a tax-saving fixed deposit as an individual account holder or along with another holder. However, only the primary holder can enjoy the tax benefits.

Minimum deposit amount

The minimum deposit amount for tax-saving FD varies from one financial institution to another. The maximum amount that can be saved with this type of FD is ₹1.5 Lakhs in a fiscal year which is also the upper limit for tax-saving investment schemes under Section 80C of the IT Act.

Nomination facility

This facility is available for tax-saving fixed deposit. That being said, nomination facility is not available in case the deposit is on behalf of or held by a minor.

Documents Required for Tax Saving FD

You need to submit identity proof as well address proof to book a tax-saving fixed deposit. You can submit any one of the following documents as address and identity proof.

Identity Proof

  • Passport

  • Voter ID card

  • PAN card

  • Driving licence

  • Senior citizen ID card

  • Government ID card

Address Proof

  • Telephone bill

  • Passport

  • Electricity bill

  • Certificate/ ID card issued by Post office

  • Bank Statement with Cheque

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Points to Keep In Mind While Submitting the Documents

There are a few things you have to keep note of before you submit scanned copies of the documents offline. They are:

  • You have to produce the original documents for verification and a scanned photocopy of all the documents.

  • The form has to be filled in capital letters using a black ink pen (varies from one financial institution to another)

  • Telephone number and permanent address have to be provided compulsorily.

  • In case of overwriting, kindly countersign.

  • You can submit any other address proof or identity proof other than the ones mentioned above subject to the chosen financial institution’s norms.


save tax on fd

When is FD Interest Taxable?

Since FD returns are classified under the ‘Income from Other Sources’ category of the Income Tax Act 1961, these earnings are subject to tax deductions. Taxes on FD interest earnings are applicable if the interest accrued on the deposited amount exceeds the ₹40,000 mark in a given fiscal year. In other words, you can avoid taxation on FD returns if your earnings fall under this stated upper limit.


For senior citizens, this limit for interest earned is ₹50,000. If your earnings do exceed this limit, your bank will deduct 10% from your total interest earnings as TDS. However, you must submit your PAN details to enjoy a 10% deduction rate. Deductions will be made at a rate of 20% if your bank does not have your PAN details. The TDS rate for non-resident Indians is set at 30%. Post TDS deductions, your returns will be taxed as per your income tax slab. 

Comparison With Other Tax-Saving Investments

FDs are not the sole investment instruments you can choose from to enjoy sizable tax rebates. While there are several other tax-saving investment options available in the market, none compare to the safety and assured returns that an FD promises. Compared to market-linked investment options like ELSS, a tax-saving FD remains unaffected by market changes and ensures steady returns for the investor. Let’s take a look at how these FDs fair against other tax-saving investment instruments: 


Tax-Saving FD


Public Provident Fund (PPF)

National Pension Scheme (NPS)

National Savings Certificate (NSC)

Lock-In Period

5 years 

3 years

15 years

Until retirement at 60 

5 years







Tax on Returns

Taxable above ₹1.5 Lakhs

Taxable above ₹1.5 Lakhs

Not taxable 

Partially taxable 

Taxable above ₹1.5 Lakhs

Premature Withdrawals

Not permitted 

Not permitted 



Permitted only under certain conditions







Factoring in lock-in periods, interest rates and risk parameters, a tax-saver FD emerges as the best investment option, followed closely by a PPF investment. While ELSS is an attractive option - given its high ROI - this market-linked investment instrument is only good for those who can stomach a high risk quotient. Thus, if you’re wondering how to save tax on FD interest without facing any market volatility, a tax-saving FD is your best bet. 


A tax-saving FD can be one of the best tools for someone looking to safeguard his earnings from tax deductions. These saving instruments promise guaranteed returns and freedom from market-linked anxieties, apart from a tax break of up to ₹1.5 Lakhs under Section 80C. You can use an FD return calculator to determine the returns that you will earning.The FD calculator is a simple and easy-to-use tool that will help you know the interest amount that you would earn on your investment based on the amount, tenor and interest rate. Therefore, if you find yourself frequently wondering about how to save tax on FD interest, simply save your money in a tax-saver FD today!

Frequently Asked Questions

Yes. Interest earned from fixed deposits is taxable under the Income Tax Act 1961.

You can use online interest calculators to ascertain your interest earnings from a particular fixed deposit plan.

TDS rates vary for resident and non-resident Indians. For the former, a 10% TDS rate is applicable, provided the bank has access to their PAN details. If PAN details are missing, TDS will be collected at 20%. For non-residents, a 30% TDS (plus surcharges) rate is applicable.

TDS or Tax Deducted at Source refers to the tax on your FD interest. It is applicable only when earnings from this investment plan exceed the ₹40,000 (₹50,000 for seniors) benchmark in a fiscal year.

No. You cannot withdraw money from your tax-saving FD before the end of the 5-year lock-in period.

Under Section 80C of the Income Tax Act, 1961, you can enjoy fixed deposit tax exemptions up to ₹1.5 Lakhs with tax-saver FDs.

Anyone who wants to earn decent returns on their investment without weathering market-linked risks should invest in a tax-saver FD.

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