Tax Saver FD

What is a Tax-Saving Fixed Deposit?

A tax-saving fixed deposit, or a tax-saver FD, is an investment recognised under Section 80C of the Income Tax Act 1961. Here, much like in the case of any other FD investments, you can invest a lump sum amount of money for a specific tenor.

Over this tenor, your deposit earns returns based on the interest rates offered by the bank. However, there are a few differences between regular fixed deposits and tax-saver FDs. 

With a tax-saving deposit, you can enjoy tax benefits of up to ₹1.5 Lakhs during the financial year. You can invest in these tax-saving deposits with many leading banks in the country. Many of them offer tax-saving fixed deposits with attractive interest rates.

Read on to get an overview of the prevailing rates, features and benefits of a tax-saver FD.

Tax Saver FD Interest Rates

Here is a preview of the tax-saving FD rates offered by different banks as of February 2023. Check out the details to make a more informed investment decision.

Top Small Finance Bank Tax Saving Fixed Deposit Rates

Many small finance banks also provide tax saver FDs. Check out the table to understand the current FD rates offered by a few small finance banks.

Comparison with other Tax-Saving Investments

Apart from investing in fixed deposits, there are numerous other investment options for saving tax. Here is a quick rundown of different tax-saving investment strategies you need to know.

Features and Benefits of Tax-Saving Fixed Deposit

There are various features and benefits of tax-saving FDs in India. Here are the top advantages and key characteristics. 

• Stable Returns

Market fluctuations do not affect the interest rates of tax-saver FDs and hence, you can earn stable returns. 

• Tax Benefits

You can also avail of tax benefits of up to ₹1,50,000 Lakhs every financial year on the amount invested in these FDs during the year. This benefit is offered u/s 80C of the Income Tax Act.

• Lock-In Period

Tax–saver FDs have a lock-in period of 5 years. This is one of the key points of difference between tax-saving deposits and regular FDs.

• No Premature Withdrawal

You cannot prematurely withdraw the sum in your deposit either partially or completely till the 5-year tenor is complete.

• Nomination Facility

These deposits also give you the benefit of a nomination facility, with which you can assign a nominee to your FD account.

• Joint Account Holding

Tax-saver FDs also offer the option of joint account holding. However, note that the tax benefits can be availed only by the first or primary account holder in a tax-saver FD.

• Competitive Interest Rates

Many leading banks offer competitive tax-saving fixed deposit interest rates today. You can compare the rates and choose the one that offers the best benefits and returns. 

Tax Deductible on Fixed Deposits

As per the Income Tax Act 1961, you can claim deductions of up to ₹1.5 Lakhs on tax-saving FDs. This amount gets deducted from the total gross income to calculate taxable income. 

Some of the criteria that you need to fulfil to claim the deduction are:

• Only HUFs and individuals are eligible to invest in a tax-saving FD scheme

• The FDs can have the minimum investment amount as mentioned by the financial institution or bank

• Tax-saving FDs have a lock-in period of 5 years

• Loans against FD or premature withdrawals are not permitted

• People may invest in these FDs through any private or public banks, except rural or cooperative banks

• The 5-year Post Office Time Deposit is also eligible for tax deductions u/s 80C of the IT Act of 1961

• FDs can be either held jointly or individually

• In the case of a joint FD, the tax deductions will only apply to the primary holder of the FD

• Tax deductible FDs have the facility for nomination

• The interest from this FD is subject to TDS and tax rate as per your tax bracket

• Interest is paid is either done on a quarterly or monthly basis

How to Avoid TDS on FDs?

As a matter of fact, you cannot completely avoid tax deducted at source on tax-saving FDs, but there are some ways to minimise the tax. Some of them are:

• Form 15G Tax-saving

You can eliminate TDS on tax-saving FDs if your annual income is below ₹2.5 Lakhs. You can complete Form 15G and submit it to the bank. This form proves that your annual income is below the limit for tax and that you do not have to pay tax.

• Form 15H Tax-saving 

This form is for individuals over 60 whose annual income does not exceed ₹2.5 Lakhs a year. Elderly citizens can use this form to exempt themselves from tax claims for their fixed deposits.

• Joint Applicant Tax-saving 

Investing in a tax-saving FD jointly is another way to avoid taxes. For joint applications, the tax is waived for the second holder. However, the benefits for tax are only available to the first account holder for joint tax-saving FDs.

How Do Tax-Saver Fixed Deposits Work?

Here are some hypothetical examples to better understand how these deposits work. 

Scenario 1: 

Say you have a lump sum amount of ₹1.2 Lakh. You want to invest this sum in a low-risk investment option and do not need this money immediately. 

So, you decide to lock this sum in a tax-saving fixed deposit for 5 years in a bank offering interest at the rate of 6% per annum. Assume you choose to reinvest the interest and receive it at maturity only. 

In this case, you can invest the entire sum in the tax-saving investment because it is below the maximum investment limit. Hence, at the end of this tenor, your investment will grow to about ₹1.60 Lakhs, and you will earn around ₹41,622.60 as interest total.

Scenario 2: 

Keeping all other parameters the same, consider you have a lump sum amount of ₹2 Lakhs to invest in a tax-saver FD. In this case, you can only deposit up to ₹1.5 Lakhs since that is the maximum limit on the investment amount permitted. 

At the end of 5 years, you will earn a total interest of around ₹52,028.25, and the investment will grow to ₹2,02,028. 

How to Start a Tax-Saving Deposit

If you think this investment avenue is a suitable option, you can start a tax-saving FD easily online or offline. Here’s a general overview of what you need to do in case you wish to invest in this kind of deposit online if your bank offers this facility.

• Step 1: Log into your bank’s net banking portal

• Step 2: Head to the ‘Deposits’ section

• Step 3: Choose the ‘Tax-Saver FD’ option

• Step 4: Enter the amount that you wish to invest and click on ‘Invest Now’

On the other hand, if you wish to start a tax-saving FD in person, you can follow the steps outlined below.

• Step 1: Visit the nearest branch of your bank

• Step 2: Ask for the application form for a tax-saving deposit

• Step 3: Fill in the details and submit the form along with any other paperwork needed

• Step 4: Attach a cheque or DD for the investment amount

That sums up how you can invest in this tax-saving investment option hassle-free. 

Things to Consider Regarding Tax-Saving Fixed Deposits

Before investing in a tax-saving deposit, you must consider the following aspects. This helps you make an informed choice or investment decision.

• Your Existing Tax Savings

You can claim only up to ₹1.5 Lakhs u/s 80C for a wide array of investments and expenses such as NPS, PPF, life insurance premiums and home loan EMIs. However, if you have already maximised your tax savings with these investment avenues, parking your funds in a tax-saving fixed deposit will not offer any extra tax benefits. 

• Your Financial Goals

Keep your financial goals in mind and ensure that their time horizon aligns with the lock-in period of your tax-saver FD, i.e. 5 years. If you are investing in a 5-year FD for a goal that is 2 to 3 years away, there is scope for better planning.

• Your Nominee

A tax-saver FD is a mid-term investment option, but 5 years can still be a long time. So, if you decide to invest in this kind of deposit, make sure you assign a nominee to your fixed deposit account. This will make it easier for your family to access the benefits in your absence.

• The FD Interest Rate

Lastly, take into account the interest rates different issuers offer before making an investment decision. This will allow to choose an option that not only helps you save tax but also ensures that you get the best returns.

Eligibility Criteria for Tax-Saving FD

Here are the eligibility parameters when booking your tax-saving fixed deposits:

• You must be a resident Indian

• An individual or a member of HUF (Hindu Undivided Family) can open this FD

• You can book an individual or a joint account 

Documents Required for Tax-Saving Fixed Deposits

You must provide address and identity proof when booking a tax-saving FD in post offices and banks. Submit the following documents for address and identity proof:

Identity Proof

• PAN card

• Passport

• Driving licence

• Voter identification card

• Senior citizen identification card

• Government identification card

Address Proof

• Telephone bill

• Passport

• Bank Statement with a cheque

• Electricity bill

• ID card/Certificate issued by the Post office

Conclusion 

Now that you know what tax-saver fixed deposits are and how they can benefit you, it is easier to make a prudent investment decision. Ensure that you use this investment avenue to your advantage to earn guaranteed returns as well as save tax in the process.

You can use the online FD interest rate calculator on Bajaj Markets to find out the amount that your investment will amass over time.

Disclaimer : 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.