A tax-saver fixed deposit is specifically designed to help individuals save on income tax. You can deposit a lump sum amount for a fixed tenor, with a lock-in period of 5 years. The investment in such FDs qualifies for deductions up to ₹1.50 Lakhs under Section 80C of the Income Tax Act, 1961.

Tax-saver FD Interest Rates

Here are the rates for tax-saving fixed deposits from some FD issuers:

Bank

Non-senior Citizen (p.a.)

Senior Citizen (p.a.)

YES Bank 

7.25%

8.00% 

AU Small Finance Bank

7.25%

7.75%

Ujjivan Small Finance Bank

7.20%

7.70%

SBI

6.50%

7.50%

ICICI Bank

7.00%

7.50%

HDFC Bank

7.00%

7.50%

PNB

6.50%

7.00%

Axis Bank

7.00%

7.75%

Bank of Baroda

6.50%

7.15%

Note: The above tax-saver FD interest rates are subject to change at the issuer’s discretion.

Features and Benefits of Tax-saver Fixed Deposit

Here are the features and advantages you can enjoy investing in a tax-saving FD:

Tax deductions

Enjoy deductions of up to ₹1.5 Lakhs on investment amount u/s 80C of the Income Tax Act

Stable returns

Fixed and assured interest rates throughout the FD tenor, providing predictable returns.

Long-term savings

Mandatory lock-in period encourages disciplined savings for at least 5 years.

Financial security

Ideal for risk-averse investors seeking a secure investment option with tax benefits

Ease of investment

Simple application process and accessibility through various banks

No premature withdrawal

You cannot prematurely withdraw the sum in your deposit either partially or completely until the lock-in period is over

Joint account holding

The tax benefits can only be claimed by the primary account holder

Eligibility Criteria and Documents Required

The eligibility criteria and documents required for a tax saving FD may vary slightly between banks, but generally, they adhere to certain common parameters.

1. Eligibility Criteria

  • Residential status:  Resident Indians, including salaried and self-employed individuals

  • Age: At least 18 years old

  • Investor Type: Individuals and Hindu Undivided Families (HUFs)

2. Documents Required

  • Identity proof: Aadhaar card, passport, Voter ID, PAN card, and senior citizen identification (if necessary) 

  • Address proof: Utility bills, driving license, Voter ID, Aadhaar card, and passport 

How to Avoid TDS on FDs

Avoiding TDS on fixed deposits involves strategic financial planning. Here are some strategies:

  • Submit Form 15G or 15H

You can submit Form 15G (if below 60 years) or Form 15H (if above 60 years) to the bank to declare that your total income is below the taxable limit. This exempts you from TDS.

  • Distribute Investments

Distribute your investments across multiple banks or tenors to keep the interest earned from each FD below the threshold. The TDS limit has been fixed at ₹40,000 for the general public and ₹50,000 for senior citizens. 

Comparison with other Tax-saving Investments

Before you invest in a tax-saver FD, compare it with these top tax-saving options:

Investment

Lock-in period

Expected Returns

Unit-linked insurance plans (ULIPs)

5 years

Market-linked

National Pension Scheme (NPS)

Until retirement

Market-linked

National Savings Certificate (NSC)

5 years

7.70%

Sukanya Samriddhi Yojana (SSY)

21 years

8.20%

Public Provident Fund (PPF)

15 years

7.10%

Equity Linked Savings Scheme (ELSS)

3 years

Market-linked

Note: The above interest rates are subject to change. Kindly check the latest rates on official government or bank websites. 

 

In conclusion, tax-saver fixed deposits serve as a prudent financial tool, combining the dual benefits of tax savings and capital protection. With a mandatory lock-in period of 5 years, these deposits provide a disciplined approach to wealth accumulation.

Disclaimer

The information provided by BFDL is related to the rates provided by Banks and Deposit taking NBFCs as available from public domain and under no circumstances is intended to be source of advice or recommendation of any financial investment advice or endorsement of any sort. BFDL disclaims any responsibility or liability regarding inaccuracies, omissions, mistakes etc. as well as offers and use of such 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. Display of any intellectual property along with the related product information does not imply BFDL’s partnership with the owner of the intellectual property of such products and is solely for the purpose of information, unless otherwise provided by BFDL.

FAQs on Tax-saver FDs

What happens to the amount when a tax-saving FD matures?

Once your tax-saving FD matures, the maturity amount, which includes the principal and the interest earned, is directly transferred to your linked bank account.

What are the risks associated with tax-saving FDs?

While there's little to no risk involved with tax-saver FDs, there are certain factors you must consider before investing. For instance, the lock-in period of 5 years means that you will not be allowed to access the invested funds, even during an emergency.

What are the minimum and maximum amounts one can deposit in a tax-saving FD?

The minimum deposit amount in a tax-saving FD varies according to the terms and conditions of the financial institution. However, you can deposit a maximum of ₹1.5 Lakhs in a financial year.

Is it possible to break tax saver FD?

No, tax-saver fixed deposits have a mandatory lock-in period of 5 years, and premature withdrawals are not allowed during this period.

Who can invest in a tax-saving FD?

Individuals and HUFs (Hindu Undivided Families) can invest in tax-saver FDs.

What is the tenor of a tax-saving FD?

The minimum tenor of a tax-saver FD is 5 years.

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