Best Tax Savings FD Schemes of 2021

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.

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.

Who Can Invest?

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.

Maximum and Minimum Investment Amount

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.

Rate of Interest

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.

Top 5 Tax-Saving Bank Fixed Deposit Rates

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.

Top 5 Tax-Saving Bank Fixed Deposit Rates for Senior Citizens

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.

Tax-Saving FD Tenure

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.

Type of Holding

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.

Tax Deduction

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.

How to Avoid TDS on Tax-Saving Fixed Deposits

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:

  • If the interest that you have earned from fixed deposits and the total taxable income that you have earned during one financial year is less than the prescribed limit of tax, then you should submit Form 15G or Form 15H.
  • Form 15G is for general people while Form 15H is for senior citizens. You have to be a resident of India and have to be more than 60 years and his/her salary has to be under the prescribed limit of tax, then you can use for 15G. However, for Form 15H, you have to be more than 60 years old and your income in one financial year has to be under the prescribed taxable limit for senior citizens.
  • Manage Your Investments Better: You can make your investments in a way that the interest earned from it does not exceed Rs. 10, 000. For example, you can invest in your fixed deposit schemein October, so that the interest earned for one Financial year does not exceed Rs. 10,000.
  • Be the Second Applicant: If you are the first applicant of your joint fixed deposit, then the tax will automatically be deducted from your account when the earned interest income exceeds the prescribed limit. However, being a second applicant in such an account, no TDS is deducted.  

Facility of Nomination

The facility of nomination is also offered in a tax-saving fixed deposit scheme.

The Final Words!

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.

Written By: PolicyBazaar - Updated: 05 January 2021
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