Tax-Saver Fixed Deposit

Tax-Saver Fixed Deposit

Bank Fixed Deposits lock the deposits (money/investment/funds) for a fixed period at a fixed interest rate. The interest rate is the percentage of money you earn from your fixed deposit over the duration of your tenure.

A bank fixed deposit offers various benefits such as guaranteed returns, higher interest rate than savings bank account, low risk, loan facility and higher interest rates for senior citizens among many more.

Banks offer two types of fixed deposits, which are as follows:-

  1. Fixed deposit
  2. Tax-Saver Fixed Deposit
Types of Bank Fixed Deposit with Info

In Tax-Saver Fixed Deposit both the tenure and the interest rate for the tenure are fixed. It is unique from other fixed deposits.

As it is a bank-based investment product, it is regulated by RBI.

On maturity of your tax saver fixed deposit you are paid back your principal with interest.

A person can invest in these FD’s through any public or private sector bank. These FD’s are not available for investment through co-operative and rural banks.

Who qualifies to open a Tax Saver FD?

  • Any resident individual who has a Pan Card.
  • Minor jointly with an adult
  • Non–resident Indians (NRIs).
  • HUF
  • Senior citizens above 60 years of age also can open a tax saver fixed deposit account.

 Investment Conditions

One can investment a minimum amount of Rs 100 in a tax saver fixed deposit. And the maximum amount that can be invested in a year is Rs. 1.5 lakh.

The minimum amount varies from bank to bank. But the maximum amount is fixed under the Income Tax Act.

 Interest Rates of Tax Saver Fixed Deposit

The rate of interest is pre-determined, but higher than the savings account. Senior citizens earn higher interest rates than others. The interest rates for Indian citizens, HUFs and NRIs vary from bank to bank

Given below are the interest rates on tax saver fixed deposit by top banks and small finance banks.

BankGeneral Interest Rates (p.a)Interest Rate for senior citizens (p.a)
ICICI Bank7.00%7.50%
Axis Bank7.00%7.50%
SBI6.75%7.25%
HDFC Bank7.10%7.50%
Citibank66.50%
IDFC Bank8.25%8.75%
IDBI6.75%7.25%
Yes Bank7.10%7.60%
Kotak Mahindra Bank6.50%7.00%
TSFD Small Finance Banks Interest Rates

Advantages of Tax Saver Fixed Deposit

  • Tax Saver FD provides you the facility of choosing a nominee who can withdraw your deposit pre or post maturity in case of the event of your death.
  • Convenient to invest.
  • Tax saver FD’s allow you to get a deduction on tax. This is why it is a highly popular tax saving instrument, especially in India.
  • Redemption on maturity comes directly to your bank account
  • The minimum amount to be invested varies from bank to bank.
  • High Safety
  • You not only save tax but can also avail fixed returns.

 Taxation

This type of fixed deposits comes with a 5-year lock-in period. They are tax deductible under section 80C. The principal amount of the fixed deposit gets tax exemption of up to Rs.1.5 lakh in a year. The interest paid to you on maturity of the fixed deposit is taxed as per the income tax slab you fall under.

Not all fixed deposits enjoy the Section 80C benefits. You have to deposit your money in a Tax Saver Fixed Deposit to avail this tax saving benefit.

 Withdrawal

Your investment is locked for a period of five years and funds can’t be withdrawn before the maturity date. You cannot pledge your 5 year tax saver fixed deposit and avail a loan against it. You can neither avail a loan nor an overdraft against this tax saver fixed deposit.

 Comparison with other Tax Saving Investments

There are many other tax savings investment alternatives that can help you build wealth, such as ELSS Tax saving Mutual Funds, PPF, NPS and NSC.

Below you can find a comparison between these tax saving instruments on few key points.

Comparing Tax Saving Instruments

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