Tax Saving FD or Fixed Deposits are a good way to get tax deduction under Section 80C of the Income Tax Act, 1961. You can claim a deduction of up to a maximum of Rs. 1.5 lakh by investing in them. The booking period for tax-saving fixed deposits is a minimum of 5 years and a maximum of 10 years. Please note that partial or premature withdrawal is not allowed in tax-saving fixed deposits.
Also, as an investor, you can nominate/authorize someone to withdraw your deposit before or post maturity in the event of your death. However, tax-saving FD is the same as other bank fixed deposits as the maturity amount (Principal + FD Interest) comes directly to your bank account.
Many banks such as DCB Bank, IDBI Bank, SBI, HDFC Bank and Axis Bank offer high interest on tax saver fixed deposit schemes.
Best Tax Saving FD Rates 2020
| Banks | Tax Saver FD Interest Rates* | |
| General | Senior Citizens | |
| DCB Bank | 6.95% | 7.45% |
| IDFC First Bank | 5.75% | 6.25% |
| YES Bank | 6.75% | 7.25% |
| IndusInd Bank | 6.75% | 7.25% |
| RBL Bank | 6.50% | 7.00% |
| Federal Bank | 5.50% | 6.00% |
| Axis Bank | 5.50% | 6.00% |
| State Bank of India | 5.40% | 6.20% |
| IDBI Bank | 5.20% | 5.80% |
| HDFC Bank | 5.30% | 5.80% |
*Interest rates updated on 16th September 2020
Benefits of Tax Saving Fixed Deposit
Among various investment instruments providing tax benefits, tax-saving fixed deposits are considered quite safe. Thus, it is a preferred choice for risk-averse investors. Benefits one can enjoy with tax-saving FD are:
- As per Section 80C of the Income Tax Act, 1961, interest earned in such FD schemes qualify for tax deductions
- A maximum of Rs. 1.5 lakh can be claimed as deductions in a financial year
- Such schemes come with a lock-in period of 5 years and tenure can stretch out to 10 years
- Investors get assured returns as well as there is an insurance of Rs. 5 lakh against bank fixed deposits, in case of any default on the bank’s side
Tax Saving FD vs. other Tax Saving Instruments
Although fixed deposits provide tax-saving options to investors, there are other options available too in which tax benefits are extended. These options include ELSS Funds, PPF (Public Provident Fund), NSS (National Savings Scheme) and NPS (National Pension Scheme). Let’s see how fairly fixed deposit performs in comparison to the other instruments:
| Tax Saving Instrument | Deductions u/s 80C | Interest Rates | Lock-in Period | Taxation |
| Tax Saving Fixed Deposit (Banks & NBFCs) | Up to Rs. 1.5 lakh | 5.20% – 6.95% (approx.) | 5 years | Interest earned on tax saver FD is taxable as per the Income Tax slab applicable |
| ELSS (Equity Linked Savings Scheme) | Up to Rs. 1.5 lakh | 13.38%* | 3 years | Returns tax-free as long as returns in a fiscal are up to Rs. 1 lakh |
| PPF (Public Provident Fund) | Up to Rs. 1.5 lakh | 7.10% | 15 years | PPF falls under EEE taxation regime. Amount invested, interest earned and maturity amount are exempt from tax |
| NSC (National Savings Certificate) | Up to Rs. 1.5 lakh | 6.80% | 5 years | Interest tax-free for the first 4 years |
| NPS (National Pension Scheme) | Up to Rs. 1.5 lakh + additional Rs. 50,000 u/s 80CCD (1B) | 6.92% – 14.29%** | Till Retirement | Income from mandatory annuity purchase is taxed as per slab rate. |
*We have given ELSS category average for 7 years. Ideally, investors of ELSS funds should stay invested for at least 7 years and above to derive the maximum growth potential from an entire business cycle.
**These are historical values. The actual NPS returns might vary.
Despite the recent cuts in fixed deposit interest rates, FDs still continue to top the chart when it comes to tax-saving investments. Investing in a flexible and secure fixed deposit scheme can help you save tax on your annual income. Banks offer different interest rates for regular depositors including individuals, senior citizens, NRIs, and bank staff. The interest rates vary depending on different categories of applicants.
Let’s have a look at interest rates offered by some banks on Tax Saving Fixed Deposits:
DCB Bank Tax Saver FD
DCB Bank offers high-interest rates of 6.95% on Tax Saving FDs for regular citizens and 7.45% for senior citizens. The minimum investment amount is Rs. 10,000 and the maximum sum that a person can invest in a financial year is Rs. 1.5 lakh. No loan is allowed against this FD scheme.
IDFC First Bank Tax Saver FD
The Tax Saving FD of IDFC First Bank offers an interest rate of 5.75% for regular citizens and 6.25% for senior citizens. An investor has to deposit a minimum of Rs. 10,000 to open the Tax Saver FD account.
YES Bank Tax Saving FD
The Tax Saving FD interest rate for YES Bank is 6.75% for regular citizens whereas senior citizens get interests at a rate of 7.25%. The interest on the deposit is paid either on a monthly basis or on a quarterly basis.
IndusInd Bank Tax Saving FD
The Indus Tax Saving FD helps depositors to save taxes and earn more through their investments. IndusInd Bank offers a 6.75% interest rate on this scheme for normal citizens and 7.25% for senior citizens. Depositors can invest up to a maximum of Rs. 1.5 lakh under the Tax Saver FD scheme.
RBL Bank Tax Saver FD
RBL Bank offers tax-saving fixed deposit scheme for a lock-in period of 5 years (maximum also 5 years). Customers can start investing from Rs 100 to Rs 1.5 lakh (in multiples of Rs 100). Premature withdrawal or partial withdrawal is not allowed. This FD can be booked via net banking or mobile banking.
Deposits maturing in less than 181 days shall fetch simple interest.
Federal Bank Tax Saving FD
The Federal bank allows the investor to make a minimum investment of Rs. 100 and a maximum of Rs. 1.5 lakh for a lock-in period of 5 years. The Bank offers a 5.50% interest per annum on a tax saver fixed deposit for general/individual investors and 6.00% for senior citizens.
Axis Bank Tax Saving FD
With a lock-in period of 5 years on a monthly/quarterly payout basis or reinvestment option, you can invest in Axis Bank tax-saving fixed deposit. The bank offers 5.50% interest per annum to regular depositors and 6.00% to senior citizens. Depositors can start with a minimum of Rs. 100 and invest up to a maximum of Rs. 1.5 lakh. Deposits have to be in multiples of Rs. 100.
SBI Tax Saving FD
State Bank of India offers tax saver fixed deposits with a lock-in period of 5 years. The investor can invest up to Rs 1.5 lakh each year and claim benefits under Section 80C of the Income Tax Act, 1961. As per the SBI Tax Savings Scheme, 2006, it offers 5.40% for general depositors and senior citizens get 6.20% interest on tax saver fixed deposits (5 years). The minimum deposit allowed is Rs. 1,000 and the maximum limit is Rs. 1.5 lakh. Deposits can be made in multiples of Rs. 1,000. Depositors can open SBI fixed deposits online by logging into their net banking account.
IDBI Bank Tax Saver FD
IDBI Bank offers Suvidha Tax Saving Fixed Deposit scheme wherein an investor can invest up to Rs. 1.5 lakh for 5 years and get a lump sum amount as saving on maturity. The bank offers a 5.20% interest per annum for regular depositors and 5.80% interest per annum for senior citizens.
HDFC Bank Tax Saver FD
HDFC Bank its 5-year tax-saving fixed deposit where the depositor can invest from Rs 100 to Rs 1.5 lakh. Customer can earn returns at 5.30% (for regular customers) and 5.80% (for senior citizens). The FD has a lock-in period of 5 years which means it cannot be withdrawn prematurely.
Conclusion
Therefore, investing in a tax-saving fixed deposit scheme may prove beneficial for you as it is a good option to save income tax. Also, senior citizens enjoy preferential interest rates on tax-saving fixed deposits and other fixed deposit options as well.
3 Comments. Leave new
Hi,
which bank is fit to invest in the FD means giving higher interest. I have seen banks like IDFC and Deutsche bank giving high interest rate. Please suggest, how it safe to invest in these banks in terms of FD as compared to other banks
Hi Abhishek,
IDFC First has a credit rating of AA which is good enough while the Deutsche Bank has a rating of BBB+ which represents average rating. It means that the provider do have adequate resources to pay returns to investors but there is risk involved to a certain degree. You should analyse more before finalising. You can check banks like Axis Bank, Yes Bank, HDFC Bank, ICICI Bank, etc. as they are more stable.
Also note that FD in any commercial bank is backed by insurance of Rs. 1 lakh by Deposit Insurance and Credit Guarantee Corporation. This means if the bank defaults, DICGC shall pay compensation of Rs. 1 lakh, irrespective of the FD amount.
Yes Sir, you may do so. But please note that you will be able to claim 80 C deduction only on one FD as the maximum amount is capped at Rs. 1.5 lakh per financial year.