• Fixed deposit
  • Tax Saving Fixed Deposit

Tax Saving Fixed Deposit

Invest in tax saving FD and save taxes up to Rs 1.5 lakhs under section 80C. Tax saver fixed deposit has a lock-in period of 5 years with restriction on premature withdrawal.

Best Tax Saver FD Interest Rates 2024

FD SchemeInterest RateSenior Citizen Rates
DCB Bank FD7.4 %7.9 %
Canara Bank FD6.7 %7.2 %
Federal Bank FD6.6 %7.25 %
Dhanlaxmi Bank FD6.6 %7.1 %
Indian Overseas Bank FD6.5 %7 %
Tamilnad Mercantile Bank FD6.5 %7 %
Union Bank of India FD6.5 %7 %
Bank of Baroda FD6.5 %7.5 %
Punjab National Bank FD6.5 %7.3 %
Karur Vysya Bank FD6.3 %6.7 %
Punjab and Sind Bank FD6.3 %6.8 %
Central Bank of India FD6.25 %6.75 %
City Union Bank FD6.25 %6.5 %
Indian Bank FD6.1 %6.6 %
South Indian Bank FD6 %6.5 %
CSB Bank FD6 %6.5 %
Bank of India FD6 %6.5 %
Bank of Maharashtra FD5.8 %6.3 %
Karnataka Bank FD5.8 %6.3 %
Nainital Bank FD5.35 %5.85 %

In India, Fixed Deposits are important as well as popular among investors. These are considered safe and can offer good interest rates. A Fixed Deposit is considered good for risk-averse investors and offers various interest rates depending on the tenure of the investment.
Fixed Deposit is a financial instrument wherein an investor can invest a lump sum amount with a bank at an agreed rate of interest on FD for a specified period of time(say from 7 days to 180 days). The amount can be invested for a period of 10 years. At the end of the tenure, the investor will receive the amount that was invested along with the interest.

What is a Tax Saving Fixed Deposit?

It is a type of Fixed Deposit that offers a tax deduction under section 80C of the Income Tax Act, 1961. To calculate the potential returns from this term deposit, one can use a fixed deposit calculator. The fixed deposit calculator is available online and is free to use.

Investment in a tax saving FD can be done through offline and online modes. For offline investing, one can visit any bank and invest in tax saving FD. For online investing, one can use the internet banking facility.

Tax saving FDs do not have a premature withdrawal facility. Moreover, one cannot take a loan against a fixed deposit account (bank tax saver fixed deposits). There is a minimum lock-in period of 5 years for the investment made in Tax Saving Fixed Deposit and the interest earned is taxable as per the slab rate applicable.

Tax Exemption on Fixed Deposit

You can claim a tax exemption against an investment in a tax saving fixed deposit. The Income Tax Act provides a tax deduction under section 80C of up to Rs 1.5 lakhs

How does a Fixed Deposit work?

Once investors invest in bank fixed deposits, the amount gets locked-in for the specified period of time. An investor can earn interest on the invested amount on a cumulative basis. There are multiple options for investment in a fixed deposit as these are available in various tenure.

Thus an investor can have one fixed deposit say for 90 days and another for 180 days. This helps in earning more interest and offers liquidity if required. Fixed deposits offer higher returns than bank savings account. The investment in bank tax saver FDs qualify for tax exemption. Fixed Deposit income tax exemption is available up to Rs 1.5 lakh under Section 80C of the Income Tax Act, 1961.

However, the interest earned on them is subject to tax as per individual’s income tax slab rates. Moreover, the interest in tax saver fixed deposits is subject to TDS of 10% if the interest income exceeds INR 40,000 (INR 50,000 for senior citizens).

How to Open a Bank Tax Saving Fixed Deposit (FD) in India

An investor can open a tax saver FD account in the existing bank where he or she has an account, as well. An investor can talk to the relationship manager or visit the respective bank’s website and initiate the process. 

You can invest in tax saver FD offered by a bank in which he does not hold a savings account. Here, the investor will have to complete your Know-your-customer(KYC) requirements. 

Below are a few documents that are required to complete your KYC for FD account : 

  • Self-attested copies of your PAN card
  • Identity proof (Aadhar Card, Pan Card, Passport etc.)
  • Address proof(Aadhar Card, Driving License, Passport, etc) 
  • Passport size photos

Once you complete the KYC requirements, you can easily start a tax-saving fixed deposit with that bank.

Compare Tax Saving FD with ELSS

ELSS or Equity Linked Savings Scheme and tax saving fixed deposits are both good investment options but differ in terms of various aspects. Below is a table reflecting the differences between the same :

ParticularsTax-saving FD ELSS
MeaningA type of deposit made with a bank wherein investors put a specified sum of money for a fixed tenure.A category of mutual fund in which funds are invested in the equity market.
ReturnsFixed deposit rates are fixed by the bankDependent on the market conditions and returns vary as per the performance of the market.
LiquidityCannot be liquidated before the specified period of 5 years.It cannot be liquidated before the specified period of 3 years.
Lockin period5 years3 years

What are the Documents Required to open a tax saving fixed deposit account?

One can invest in tax saving Fixed Deposit through online or offline mode. The documents required to open a tax saving fixed deposit account are:

  • Tax saving Fixed Deposit application form
  • 2 Passport Size Photographs
  • Pan Card or Form No. 60 or 61 of the Income Tax Act
  • Address proof as per KYC norms. (Aadhaar card, Telephone bill, Electricity bill, Bank Statement with cheque)
  • Identity Proof as per KYC norms. (Aadhaar Card, Passport, Voter ID Card, ,PAN Card, Driving License)
  • Senior Citizen ID Card (for senior citizens)

What is the TDS on a Fixed Deposit Interest Earned?

The interest income on a tax saving fd is chargeable to tax and hence TDS is also applicable. However, the deduction of TDS is subject to the interest income earned by a taxpayer in the financial year.

TDS RateInterest Earned For Normal CitizenInterest Earned For Senior Citizen
0%Less Than Rs. 40,000Less Than Rs. 50,000
10%More Than Rs. 40,000More Than Rs. 50,000
20%More Than Rs. 40,000 (No Pan Card)More Than Rs. 40,000 (No Pan Card)

NOTE: If the total income (including FD interest) is less than Rs 2.5 lakh, TDs will not be deducted. This is due to the fact that TDS is deducted when income is chargeable to tax. And if the income is not chargeable to tax as a result of exempt tax slab, then deduction of TDS would not be useful. The taxpayer will unnecessarily have to bear the burden of TDS deduction and claim refund while filing ITR. Further, here the taxpayer will have to furnish Form 15G or Form 15H to claim interest without TDS.

  • No TDS to be deducted: If the interest earned from all the FDs with a bank is less than Rs. 40000 in a financial year, no TDS will be deducted. In the case of a senior citizen (aged more than 60 years) the limit is extended to Rs. 50000.
  • TDS at a rate of 10%: If the interest earned from all the FDs with a bank is more than Rs. 40000 in a financial year, TDS @ 10% will be deducted. In the case of a senior citizen (aged more than 60 years) the limit is extended to Rs 50000.
  • TDS at a rate of 20%: If a taxpayer fails to furnish his/ her PAN to the respective banks, TDS @ 20% will be deducted.

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