Income Tax Exemption on FD
Depositors can claim income tax exemptions on the FD interest of FCNR and NRE accounts. However, one can claim a tax deduction by investing in a tax-saving fixed deposit scheme offered by different banks. The principal component of Tax Saver FDs of up to Rs 1.5 lakhs each financial year would qualify for tax deduction under Section 80C. However, the interest income received from Tax Saver FDs would be taxable as per the tax slab of the depositor.
Fixed Deposit Income Tax Deduction available under Section 80C
The tax-saving FD schemes have a lock-in period of 5 years and the deposit amount of up to Rs 1.5 lakh each financial year qualifies for tax deduction under Section 80C of the Income Tax Act. The National Savings Time Deposit Account (popularly known as Post Office Fixed Deposit) opened for 5-year tenure also qualifies for the same deduction.
However, depositors should note that the interest income on FD is taxable and is taxed under “Income from other sources” in the IT return.
Fixed Deposit Income Tax Deduction available under Section 80TTB
According to Section 80TTB of the Income Tax Act, senior citizens can avail of a deduction of up to Rs 50,000 on the interest on fixed deposits.
Also Know: Top Banks Offering Senior Citizen FD Interest Rates 2022
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TDS on Fixed Deposits
According to Section 194A of the Income Tax Act, TDS is applicable to the interest earned on fixed deposits. TDS @ 10% is deducted if interest income exceeds Rs 40,000 (Rs 50,000 for resident senior citizen) during the financial year. But, if PAN details are not provided, TDS @ 20% is deducted from the interest income.
Depositors who do not have taxable income can furnish a declaration in Form 15G and Form 15H (for senior citizens aged 60 & above). Doing so would allow the banks to not deduct TDS on the FD interest and thereby, help such depositors in more effective cash flow management.
As FD interest income is added to one’s annual income while filing tax returns, depositors who have filed Form 15G/H but have taxable income would have to pay tax as per their tax slabs while filing ITR.
Best Tax Saving FDs You Can Invest In
The interest rate of a Tax Saving FD ranges from 5.60% to 7.50%. Most banks offer higher FD interest rates to senior citizens of age 60 and above. Senior citizens can get an additional benefit of 0.25% to 0.80% p.a. interest rates over the regular FD rates offered to general citizens. Currently, small finance banks (Jana Small Finance Bank, Ujjivan Small Finance Bank, AU Small Finance Bank) and private sector banks (RBL Bank, YES Bank, IndusInd Bank) are offering higher returns on tax-saving FD.
Depositors can earn 6.70% p.a. fixed deposit interest for the tenure of 5 years under the Post Office tax saving scheme.
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Top 10 Tax Saver Fixed Deposit Interest Rates 2022
| Banks | Interest Rates (% p.a.) | |
| Regular Citizens | Senior Citizens | |
| Utkarsh Small Finance Bank | 7.50 | 8.25 |
| Jana Small Finance Bank | 7.25 | 8.05 |
| Ujjivan Small Finance Bank | 7.20 | 7.95 |
| Fincare Small Finance Bank | 7.00 | 7.50 |
| DCB Bank | 7.00 | 7.50 |
| AU Small Finance Bank | 6.90 | 7.40 |
| Suryoday Small Finance Bank | 6.75 | 7.25 |
| Yes Bank | 6.75 | – |
| IndusInd Bank | 6.75 | 7.50 |
| RBL Bank | 6.55 | 7.05 |
The above-stated FD interest rates are updated as of 6 October 2022