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Tax Saving FD

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.

What is a Fixed Deposit?

Fixed Deposit is a financial instrument wherein an investor can invest a lump sum amount with a bank at an agreed rate of interest 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 which offers a tax deduction under section 80C of the Income Tax Act, 1961. The quantum of the deduction is dependent on the investment that is made and is limited up to a maximum of Rs. 1,50,000. 

There is a minimum lock-in of 5 years for the investment made in Tax-Saving Fixed Deposit and the interest earned is taxable as per the slab rate applicable.

How does a Fixed Deposit work?

Once an investor makes a fixed deposit with a bank, 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.

Which Banks offer Tax-Saving Fixed Deposit?

Below are a few banks that offer tax-saving fixed deposit and the interest rate offered by them:

BankFD Interest Rate
HDFC Bank6.90%
Yes Bank7.25%
Axis Bank6.75%
ICICI Bank7.00%
Bank of Baroda6.25%
Lakshmi Vilas Bank7.25%
Punjab National Bank6.50%
State Bank of India6.25%

Above stable as on 31 Jan 2020

Procedure for making a Tax-Saving Fixed Deposit

An investor can open a tax-saving fixed deposit 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. 

An investor can invest in fixed deposits offered by a bank in which he does not hold an 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 : 

  1. Self-attested copies of your PAN card
  2. Address proof(Aadhar Card, Driving License, Passport, etc) 
  3. Passport size photos

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

Comparison with ELSS

ELSS 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 FDELSS
MeaningA type of deposit made with a bank wherein investor puts a specified sum of money for a fixed tenure.A category of mutual fund in which funds are invested in the equity market.
ReturnsFixed return as per the rates offered 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.
Lock-in period3 years5 years

Frequently asked questions(FAQ)

Published on February 10, 2020