Tax Saving Fixed Deposit: Interest Rate, Benefits, Eligibility & Comparison with ELSS

Manish Kothari
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Manish Kothari


Tax Saving Fixed Deposit is a type of Fixed Deposit in which the depositor can get the tax deduction along with interest earned from the FD.

Depositors can get a tax deduction of up to ₹ 1.5 lakh (in a financial year) under section 80C of the Income Tax Act, 1961. But, we all know to get something, we need to give something, so, here the thing is Tax saving FDs have a lock-in period of 5 years.

In the case of other FD schemes, the lock-in period is the same as the maturity period of the deposit. However, in such non-tax-saving schemes, the depositor can withdraw the FD prematurely with some penalty. In the case of Tax Saving FDs, the depositor strictly cannot withdraw the premature FD. The terms such as interest rates differ from Bank to Bank.

Interest Rate of Tax Saving Fixed Deposit

BanksRegular Interest RatesSenior Citizen Rates
SBI Tax Saving Scheme5.40 %6.20 %
HDFC Tax Saving FD5.50 %6.25 %
RBL Tax Saving FD6.95 %7.45 %
PNB Tax Saving FD5.25 %6.00 %
Bajaj Finance Tax Saving FD6.60 %6.85 %
Citibank Tax Saver Deposit3.75 %4.25 %

Features of Tax Saving Fixed Deposit

  • Depositors will get tax exemption under Section 80C of the Income Tax Act, 1961.
  • In the case of Joint Deposits, the tax benefit will be given to the primary holder of the FD.
  • Tax saving FD has a lock-in period which may vary from 5 years to 10 years.
  • Minimum of ₹ 1,000 can be invested in a Tax saving FD with an upper limit of ₹ 1.5 lakh in a financial year.
  • Investment done in Post office time deposits for 5 years or more is also considered as Tax Saving FD.
  • Depositors cannot withdraw the FD before maturity.

Also Read: Best Tax Saving Options Under Section 80C

Benefits of Tax Saving Fixed Deposit

  • Depositors can take a maximum of ₹ 1.5 lakh in one financial year.
  • Tax Saving FD gives high returns along with Tax benefits.
  • It also gives the benefit of withdrawing the premature or post maturity FD to the nominee in case of the demise of the depositor.

Eligibility of Tax Saving Fixed Deposit

  • Only Individuals within the country can apply.
  • Hindu Undivided Families (HUFs) as also eligible to invest.
  • Minor can also invest in joint FD with an adult.

Taxation of Tax Saving Fixed Deposit

Depositors can take a tax deduction benefit of ₹ 1.5 lakh per financial year under Section 80C of the Income Tax Act,1961.

But, the interest earned on the FD is taxable. This tax liability depends upon the financial income and tax slab person comes into and this comes under the Income from other sources in the Income Tax Act, 1961.

In addition to this, if the interest earned is more than ₹ 40,000 in a financial year then banks are allowed to deduct TDS. The bank will issue a TDS certificate and an individual can take a deduction for that also in the Income Tax if the individual is not eligible to pay the tax.

Tax Saving FD vs ELSS

For tax-saving investments, Fixed Deposits are not the most efficient or suggested instrument. If one is looking to lock-in their money for a period of 5 years, Equity Linked Saving Schemes (ELSS) is a far superior product. ELSS is a type of mutual fund that invests in equity and equity-related securities and they have a lock-in for only 3 years.

The expected returns on ELSS are much higher than on tax-saving FDs, and there is an advantage in terms of the capital gains tax on the income as well.

Some of the highlights of ELSS vis-a-vis Tax Saving FDs are given below.

ParticularsELSSTax Saving FD
ReturnsAs it is subject to market risk, it does not have any fixed rate of return. However, the expected rate of return is higher than FDsIt offers a fixed rate of interest depending upon bank to bank. However, this rate of return is very close to the inflation rate.
Lock-in Period3 years5 Years
Tax efficiency10% LTCG tax on gainsAs per the tax slab
Tax BenefitUpto ₹ 1.5 lakh Upto ₹ 1.5 lakh 
Term3 Years lock-in period and after that as per choice of investors5 Years lock-in period which can be extended upto 10 years

More Information:

What is Fixed Deposit: Meaning, Interest Rates, Benefits, Risk
Corporate Fixed Deposit: Risks, Investment Security, Tax Deduction
Loan Against Fixed Deposit (FD): Eligibility, Interest Rate, Documents, Process
ELSS vs FD: Risk, Returns, Tax Benefits, Comparison, Which is Better
FD vs RD - Fixed Deposit and Recurring Deposit Difference
RD vs SIP - Risk, Returns, Benefits, Tenure, Comparison, Which is Better Investment
Post Office Time Deposit: Scheme Interest Rate, Eligibility, Risks, Calculation
Post Office Monthly Income Scheme (POMIS): Eligibility, Interest Rate, Benefits
Post Office Saving Schemes: Types, Plans, Benefits, Who Should Invest

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