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When looking for safe investment avenues, fixed deposits continue to have a prominent standing in the market. In fact, the tax exemption on fixed deposits is a key benefit you can avail yourself when you invest in a tax-saving FD. 


Since this distinct benefit is not available on all FDs, the ones which do have are also referred to as tax saving FDs. Though this FD works similarly to a regular fixed deposit, tax exemption under Section 80C of the Income Tax Act is applicable.


In a tax-saving FD, you can open an account either as a single or joint holder. However, in the case of a joint FD, this income tax exemption on FD applies only to the first holder. 


To know more about the features and benefits of tax-saving FDs, read on.

What is TDS on Fixed Deposits?

Tax deducted at source or TDS is the concept of collecting tax directly from the income source of an individual. This collection is done by the IT department of the Indian government. That being said, on filing the ITR the individual, whose income has been taxed can get the tax deducted by submitting TDS certificate or Form 26AS that is issued by the deductor. TDS is applicable for any interest that is earned on FDs.

What is a Tax-Saving FD?

In simple terms, when you can avail income tax exemption on fixed deposits, it is termed as a tax-saving FD. The tax exemption on FD made available is according to section 80C of the Income Tax Act. 


When you book this FD, tax exemption benefits of up to ₹1.5 Lakhs can be availed. However, this limit includes all other investment instruments eligible for tax exemption under section 80C of the Income Tax Act.


These tax-saving FDs come with a lock-in period of 5 years and offer fixed returns similar to regular deposits. So, no matter the market conditions, the returns you earn on a tax-saving FD are stable.


However, there are a few points to remember, such as premature withdrawal is not available with this 5-year FD. Tax exemption is only available if you stay invested. This means that your interest income from this FD will be taxed as per the tax slabs.


tax exemption fd

Features of Tax-Saving FDs

Here are a few key features to know before you opt for FD with the tax exemption benefit:

  • Opting for an income tax exemption on FD reduces your tax liability

  • It has a compulsory lock-in duration of 5 years

  • Nominee facility is available for investors

  • No tax exemption on FD interest earnings 

  • Interest rates differ from one financial institution to another. You have the option of opening a tax-saving fixed deposit account with another individual also. In such a scenario, the benefits of tax are applicable only to the first FD account holder.

  • No change in interest rates within the 5-year tenor

  • Auto-renewal option is not applicable

  • Option to enjoy flexible interest pay-outs monthly or quarterly

  • Availing loan or overdraft facility is not possible in a tax-saving FD
  • Upon maturity of the tax-saving fixed deposit, the maturity amount will be directly credited to the savings account that is associated with your fixed deposit.

How is a Tax Exemption on FD Beneficial?

The primary benefit of a tax saving FD is that it allows you to reduce your taxable income and, thereby, your tax liability. According to the Income Tax Act, you can claim a deduction of up to ₹1,50,000 from your taxable income. 

Given the deduction limit, the impact on your tax liability can be significant. Apart from this, other benefits of a tax-saving FD overlap with that of a regular FD. Here are some benefits you can enjoy.Carries a lower risk as compared to other investment options

  • Offers higher returns when compared to parking funds in a savings account

  • Allows you to deposit in a lump sum, which is beneficial if you have surplus savings

  • Provides security and remains unaffected by market volatility

  • Can book a tax-saving FD with just ₹100 and a maximum limit of ₹1.5 Lakhs

  • Offers a minimum tenor of 5 years, which can be extended for a longer duration

  • Senior citizen investors are offered a higher interest rate

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Who are Eligible to Apply for Tax Saving FDs?

When investing in a fixed deposit, income tax exemption is one of the main benefits you can enjoy. However, to avail these benefits, you need to be eligible to apply for a tax-saving FD. While the eligibility terms may vary, here is a list of who can avail income tax exemptions on FDs.

  • Hindu Undivided Families

  • Resident Individuals above 18 years of age

  • Minors, along with a joint custodian

  • Indian residents

  • Senior citizens

  • Sole proprietors

  • Non-resident Indians

  • Societies, associations and trusts

  • Partnership firms

  • Religious and educational institutes

Note that any amount invested in a post office scheme for 5 years also qualifies as a tax saving deposit. You can also transfer post office term deposits from one office to another throughout India. 

Documents Required for Booking Tax Savings FDs

Whether you book a tax saving FD in a bank or post office, submit necessary documents as ID and address proof for a quick and seamless process. Here is a list of documents required when opting for tax exemption on fixed deposits:

1. For ID proof:

  • PAN card

  • Aadhaar card

  • Passport

  • Driving licence

  • Senior citizen ID card

  • Government ID card

  • Voter card

  • Latest passport-size photographs

2. For address proof:

  • Aadhaar card

  • Passport

  • Utility bills

  • Bank statement 

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Tax Exemptions on Interest Earnings

As mentioned, for FD interest, tax exemption is not possible and tax is deducted at the source. Keep in mind that TDS is applicable only if your interest earnings exceed ₹40,000 in a year. This limit is extended to ₹50,000 per year if you are a senior citizen investor.


However, there is an option to avoid tax deduction at source on your interest earnings too.


Simply submit for 15G if you are a non-senior citizen investor and form 15H if you are a senior citizen investor. After submission and review, the bank will not deduct TDS from your returns.


When it comes to fixed deposit interest, income tax exemption is possible in other ways too. For example, you may time your investment so that the total interest earned during a financial year does not exceed the taxable amount. This way, you can avoid TDS on your earnings.

Key Points to Consider When Availing a Tax Exemption on FDs

  • Submit all the necessary documents as per bank norms

  • Apply for a PAN card, if you don’t have one, as it is a crucial document

  • Fill out the form accurately and clearly to avoid any confusion or delays

  • Produce original documents along with copies for easy verification 

  • Include the nominee without fail when booking a tax-saving FD

  • Provide your permanent residential address and contact number

Comparison of Various Tax Saving Schemes

Post Office Tax Saving Schemes

Tenor (in years)

Interest Rate (% p.a.)

                      Tax Benefits

Principal Amount

Interest Earnings

Maturity Amount

Post Office Time Deposit



Not Available

Not Available

National Savings Certificate (NSC)




Not Available

Sukanya Samriddhi Yojana (SSY)






Senior Citizen Savings Scheme (SCSS)



Not Available

Not Available

Public Provident Fund (PPF)






Apart from tax-saving FDs, the above-mentioned plans are some tax-saving investment instruments. However, FDs continue to rule the market because of the capital protection and returns you get, irrespective of market conditions.


So, before investing in a regular or tax-saving FD, check out the prevailing FD rates across various financial institutions. Visit Bajaj Markets and invest in a fixed deposit that best aligns with your financial goals.


The information provided by BFDL herein above is related to the Non-Partnered Banks/ NBFCs and is just for the purpose of information and under no circumstances the information provided hereinabove is intended to be source of advice or recommending any financial investment advice or endorsement of any sort.

The information including interest rates with regard to fixed deposit, provided on this website is gathered through publicly available sources over the internet and is considered as accurate and reliable to the best of our knowledge. BFDL disclaims any responsibility or liability regarding inaccuracies, omissions, mistakes etc. as well as offers by the Non-Partnered Banks. The use of information set out is entirely at the User’s own risk and User should exercise due care prior taking of any decision, on the basis of information mentioned hereinabove. You are advised to visit/ contact the respective Banks/ NBFCs to verify the information before making any investment or opening an account. Further, BFDL does not undertake any responsibility or liability to update this information. YOU ARE SOLELY RESPONSIBLE FOR ANY LIABILITY OR DAMAGE YOU INCUR THROUGH ACCESS TO OR USE OF THE SITE OR SUCH INFORMATION OR MATERIALS EXCEPT WHERE THE LAWS AND REGULATIONS OF A PARTICULAR JURISDICTION CONCERNING WARRANTIES CANNOT BE WAIVED. Additionally, display of any trademarks, tradenames, logo and other subject matters of intellectual property owners. Display of such Intellectual Property along with the related product information does not imply BFDL’s partnership with the owner of the Intellectual Property of such products. 

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FAQs on Tax Exemption

When you book a tax-savings FD, the entire maturity amount is credited to your savings account upon maturity.

Yes, senior citizens are eligible to invest in tax-saving FDs.

Yes, since fixed deposits are unaffected by market volatility, they offer capital protection and fixed interest rates.

For a non-senior citizen, the total interest earnings for a financial year have to be within ₹40,000 to avail tax deductions. For a senior citizen, this amount is up to ₹50,000.

However, if your earnings go beyond this, you can submit form 15G/H to avoid tax deductions.

Yes, investing in a tax saving FD allows you to enjoy tax benefits up to ₹1.5 Lakhs according to Section 80C.

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