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, 2021
| Banks | Tax Saver FD Interest Rates* | |
| General | Senior Citizens | |
| DCB Bank | 6.75% | 7.25% |
| IDFC First Bank | 5.75% | 6.25% |
| YES Bank | 6.75% | 7.50% |
| IndusInd Bank | 6.50% | 7.00% |
| RBL Bank | 6.60% | 7.10% |
| Federal Bank | 5.50% | 6.00% |
| Axis Bank | 5.75% | 6.50% |
| State Bank of India | 5.40% | 6.20% |
| IDBI Bank | 5.10% | 5.60% |
| HDFC Bank | 5.30% | 5.80% |
*Interest rates updated on 8th April 2021
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 if the bank goes into liquidation or amalgamation/merger (Read more here)
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 | 5.10% – 6.75% (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.
3 Comments. Leave new
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.
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.