If you are searching for a tax-saving investment option, then nothing is better than a tax-saver fixed deposit scheme. It is one of the popular investment options that come under section 80C category of financial plans as per the Income Tax Act, 1961. Tax saving FD schemes are considered less risky as compared to other investment instruments like equity funds.
Save upto ₹46,800 in tax under Sec 80C
Inbuilt Life Cover
Tax Free Returns Unlike FD+
With saving tax, the income you earn from FD can work as a regular income source, which is highly beneficial for senior citizens for meeting their day to day expenses. Here in this article, we are going to discuss almost everything that you need to know about a tax-saving fixed deposit and which are the top tax-saving fixed deposits.
According to the current law of the income tax, only Hindu Undivided Families and individuals are eligible to invest in a tax-saving fixed deposit scheme. You can open a tax-saving FD account either with a bank in which you already have a savings account or with some other bank. However, in the latter case, the bank must allow you to open an FD account without a savings account. If your bank allows you to do so, then you must provide your KYC details like self-attested copies of your identity proof (PAN Card), address proof (Driving License, Passport, etc.), and passport size photo. You should carry the originals of all the documents that you are submitting as the officials of the bank may ask you to show them before accepting the form for KYC.
The minimum amount that you can invest in your tax-saving FD scheme varies with the bank. However, you are not allowed to invest more than Rs.1.5 lakh in one Financial Year in such deposit schemes.
The rate of interest offered for tax-saving fixed deposit schemes varies with banks for example the SBI interest rates on fixed deposits for regular citizens is 5.30% and the rate of interest offered by ICICI Bank for the same tax-saving FDs is 5.35% for regular citizens. You can select from the non-cumulative interest option or cumulative interest payment option, which are generally offered by most of the banks.
Name of the Bank |
Rate of Interest (%) |
AU Small Finance Bank |
6.50% |
City Union Bank |
6.00% |
DCB Bank |
6.95% |
IndusInd Bank |
6.75% |
RBL Bank |
6.50% |
Note: The rate of interest offered on tax-saver fixed deposits are subject to change and valid as of September 2020.
Name of the Bank |
Rate of Interest (%) |
AU Small Finance Bank |
7.00% |
Bandhan Bank |
6.50% |
DCB Bank |
7.45% |
IndusInd Bank |
7.25% |
RBL Bank |
7.00% |
Note: The rate of interest offered on tax-saver fixed deposits are subject to change and valid as of September 2020.
The tenure of tax-saving fixed deposits is five years. As per the Bank Term Deposit Schemes 2006, you are not allowed to break your tax-saving FD before it completes five years from the date it was deposited. Different than the normally fixed deposit schemes, which can easily be used as collateral for obtaining a loan, you cannot take a loan against your tax-saving fixed deposit scheme.
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You can open your tax-saving FD jointly or singly. However, if your FD is opened jointly, then deduction u/s 80C will be available to only the first holder of the FD as mentioned on the receipt of FD.
The amount that you have invested in your FD is up to Rs.1.5 lakhs in one financial year, then it qualifies for income tax deduction u/s 80C of the IT Act. However, you should always remember that the interest accumulated on the principal amount is completely taxable. The interest is added to your income and taxed as per the income tax slab applicable in your earnings. If the interest on your FD with a single bank is more than Rs. 10,000 in one Financial Year, then the bank will deduct the TDS.
TDS or Tax Deduction at Source is applied on all the income that you have earned as interest in India including the fixed deposits. As mentioned above for every financial year of your income earned through interest is more than Rs. 10,000, then you will have to pay the tax. However, you can avoid paying TDS by providing the following documents:
The facility of nomination is also offered in a tax-saving fixed deposit scheme.
FDs are the best investment option as they offer certain returns for sure without any element of financial risk. However, it is always recommended to do the tax planning and manage your investment instead of paying hefty income tax.
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
^Trad plans with a premium above 5 lakhs would be taxed as per applicable tax slabs post 31st march 2023
+Returns Since Inception of LIC Growth Fund
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