Fixed deposits are an excellent way of saving money. But, in spite of all the benefits offered by regular FDs such as loans and flexible withdrawal, these do not have any kind of tax savings benefits. Tax saving fixed deposit is a type of FD which has tax savings benefits. This is invested for five years and does not have flexible benefits like the regular FD. Tax saving fixed deposits have a lot of other benefits, which are higher for a senior citizen. Given below are the benefits, eligibility criteria, interest rates of tax saving FDs, and tax deductible on fixed deposits.
Things To Know About Tax Saving Fixed Deposits
Given below are some of the key features of a tax saving FD.
- The maturity period of a tax saving FD is five years.
- Premature withdrawal is not permitted.
- Individuals cannot avail loans against tax saving FD.
- Tax saving FD can be opened individually or jointly.
- Investors can get deductions up to Rs. 1,50,000.
- The interest earned from the tax saving FD is taxable under TDS.
Benefits of investing in Tax Saver FDs
Here are some of the key benefits of investing in a tax saving FD.
Saves Tax:
One of the most significant benefits of investing in a Tax saving FD is that it helps save income tax.
Can Start Investing with Low Inputs:
Accounts can be opened with as little as Rs.100
Assured Returns:
Assured returns apart from saving tax as premature withdrawal is not available with tax saving FD.
Nomination Facility Available:
Investors can nominate or authorize to withdraw the deposits before or post maturity in the event of death.
Who is Eligible to open a Tax Saver FD?
Check out the list of those who are eligible to open a tax saving FD.
- All residents of India with a PAN card
- Senior citizens above the age of 60 years
- NRIs or Non-resident Indians
- HUF or Hindu Undivided Family
Tax Saver Fixed Deposits Interest Rate Comparison
Given below is a table displaying the interest rates of tax saver fixed deposit offered by several banks.
Bank | Regular FD Interest Rate (Annually) | Senior Citizen FD Rates (Annually) |
| ICICI Bank | 6.50 Percent | 7.00 Percent |
| Axis Bank | 6.25 Percent | 6.50 Percent |
| SBI | 6.25 Percent | 6.50 Percent |
| HDFC Bank | 6.00 Percent | 6.50 Percent |
| Citi Bank | 5.00 – 5.25 Percent | 5.50 Percent |
| Suryoday Small Finance Bank | 7.25 – 7.75 Percent | 7.50 – 8.00 Percent |
| AU Small Finance Bank | 7.25 – 7.40 Percent | 7.75 – 7.90 Percent |
| IDFC Bank | 7.20 Percent | 7.70 Percent |
| Ujjivan Small Finance Bank | 6.50 – 7.00 Percent | 7.00 – 7.50 Percent |
Please note that the interest rates are subject to change without prior notice as per the bank’s policies.
Tax Deductible on Fixed Deposits
TDS stands for Tax Deducted at Source and is a part of the income tax. TDS applies to every interest income earned in India, including the FDs. If the income earned through an interest in a financial year is more than Rs.10,000, the account holder has to pay tax at any cost.
Individuals can claim a tax deduction for investments in tax saving FD of up to Rs.1.5 lakh as per the tax laws. The amount gets deducted from the total gross income of the individual to arrive at the taxable income. Here are some criteria to be fulfilled to claim this deduction.
Only individuals and HUFs are eligible to invest in tax saving FD schemes.
FD can be of the minimum amount as specified by the bank.
The tax saving FD has a lock-in period of 5 years. Premature withdrawals and loans against this FD are not permitted.
Except for rural and co-operative banks, investors can invest in tax saver fixed deposit through any public or private sector.
The post office time deposit of 5 years also qualifies for the same deductions under Section 80C of the Income Tax Act of 1961. Post office FDs are transferable between post offices.
Investors can either have an individual or a joint account. In case of a joint FD, the first holder of the FD gets the tax benefit.
Tax-Deductible FDs have a Nomination Facility.
Senior citizens get a higher interest rate on tax saving FDs than the normal tax saving FDs.
Interest earned on FDs is applicable for TDS. The interest is payable either on a monthly or quarterly basis. This interest may be reinvested.
How to Avoid TDS on FDs
As discussed above, the account holder does not have to pay tax if the interest earned is less than Rs.10,000. Offered as per the prevailing income tax rules, TDS can be circumvented by planning investments smartly. Given below are some ways to avoid TDS on FDs.
By Self-Declaration:
If the interest earned is less than the prescribed taxable limit, the applicant must fill and submit Form 15G or 15H in the bank. The bank does not deduct TDS on the interest earned if the investor submits the form. Form 15G is for individuals and HUFs whose income does not exceed the prescribed tax limit. Whereas, 15H is for senior citizens, individuals who are above the age of 60 years. The form will be considered void if the interest earned is eligible for tax deductions.
By Calculating Timings:
Timing the investments in a manner that it does not exceed Rs.10,000 for any financial year can help save TDS. One way to achieve this is by splitting the financial year. Individuals can invest in October. This divides the financial years into two as the financial year comes to an end by March 31.
By Being the Second Applicant:
TDS gets deducted from the account of the first applicant in case of a joint account. Hence, the investor can avoid TDS by being the second applicant.
By Distrusted Investments:
Instead of investing everything in one bank, distribute investment across several banks in such a way that the interest does not exceed Rs.10,000.
Tax saving fixed deposits can be beneficial for those seeking tax deductions and can be instrumental in investing. Read about the banks’ policies before applying to get the most of the scheme.