What is a Tax Saving FD – Interest Rates, Benefits, Features and Calculation
Did you know that tax-saving FDs (fixed deposit) can help you save up to Rs.46,800 on taxes? Considered as a special FD scheme, tax-saving FD investments are eligible for income tax deduction under Section 80C of the Income Tax Act. These FDs can fetch you up to 8.10% interest rate or more depending on the tenure. The maximum deposit amount is capped at Rs.1.5 lakh. Let’s understand how these FDs work, their features and benefits.
What is a Tax Saving FD?
Tax saving fixed deposit is a type of deposit scheme that allows you to claim tax deduction benefits up to Rs.1.5 lakh under 80C of the I-T Act on your FD investment. The tenure ranges from 5 to 10 years. However, tax-saving fixed deposits come with a lock-in period of 5 years, which means there’s no premature withdrawal allowed.
How Does a Tax Saving FD Work?
Here’s a simplified summary of how a tax saving fd work :
- Banks and NBFCs offer a financial provision where you deposit a lump sum of money for a fixed period or tenure
- The lock-in period for a tax-saving fixed deposit is 5 years
- It provides a tax deduction under Section 80C up to Rs.1.5 lakh of the Income Tax Act, 1961
- Deposit tenure ranges from 5 years – 10 years
- The interest earned on the deposits is subject to taxation
Features of Tax Saving Fixed Deposits
- Interest rates available: 6.25% p.a. to 7.60% p.a. for the general public
- Tenure: 5 years to 10 years
- Deposit range: Rs.100 to Rs.1.50 lakh p.a.
- Lock-in period up to 5 years
- No premature withdrawals allowed
- No auto-renewal options
Benefits of Tax Savings Fixed Deposit
- A 5-year lock-in period must be completed before premature withdrawal is permitted.
- Senior citizens can avail of a 0.25% to 0.75% increase in interest rates in many banks.
- Many Tax Saving Fixed Deposit schemes offer the option of a joint account.
- However, only the primary account holder in a joint account is eligible for tax benefits.
Tax Saving FD Interest Rates
Here is a list of best performing tax saving fd interest rates
| Name of the Bank | Interest Rate (Regular Citizen) | Interest Rate (Senior Citizen) |
| State Bank of India | 6.5% | 7.5% |
| Kotak Mahindra Bank | 6.20% | 6.70% |
| HDFC Bank | 7.00% | 7.5% |
| Punjab National Bank | 6.50% | 7.00% |
| IDFC Bank | 7.00% | 7.50% |
| Deutsche Bank | 7.50% | 7.75% |
| Axis Bank | 7.00% | 7.50% |
| DCB Bank | 7.60% | 8.10% |
| Bank of Baroda | 6.50% | 7.15% |
| RBL Bank | 7.00% | 7.50% |
| ICICI Bank | 7.00% | 7.50% |
Also Read
Calculate Your FD Interest Rate
Total Investment
Rate of Interest (P.a)
%
Time Period (Years)
Invested Amount
0
Est. Returns
Total Value
You can calculate your FD Interest Rate via simple interest method and compound interest method. The simple interest method is mentioned below:
1. Simple Interest Method
Simple Interest = (P * R * T)/100
Where,
- P = principal amount invested
- R = Rate of interest (%)
- T = Tenure
Alternatively, you can calculate your fixed deposit interest rate via compound interest method. The compound interest calculations is as follows:
2. Compound Interest Method
A = P (1+r/n) ^ (n * t)
Where,
- A = Maturity Amount
- P = Principal amount invested
- r = Rate of Interest (in decimals)
- n = number of compounding in a year
- t = number of years
Documents Required to Open Tax Saving FD
1. Identity Proof
- Driving License
- Senior Citizen ID Card
- Passport
- PAN Card
- Government ID Card
- Voter ID Card
2. Address Proof
- Bank Statement
- Passport
- Electricity Bill
- Telephone Bill
- ID Card / Certificate issued by Post Office
- Voter ID Card
Eligibility Criteria for Tax Savings FD
You may need to meet the following eligibility criteria to open tax-saving FD
- Indian Resident above 18 years of age
- Hindu Undivided Families (HUF)
- Partnership Firms
- Trust Accounts
- Limited Companies
How to Avoid Tax Implications on Fixed Deposits?
Here are few ways you can follow to avoid tax on fixed deposits :
1. By Submitting Form 15G/15H
If you submit Form 15G (for individuals) or 15H (for senior citizens) declaring that you have no taxable income, the bank will not deduct any TDS on the interest earned.
2. Timing the FD
You can avoid tax deductions by timing your FD in such a way that the interest earned during any financial year is not more than ₹ 10,000.
3. Splitting the FD
Another way to avoid tax deduction is by opening one FD under your personal bank account and another under a HUF account. This way, both accounts will be treated separately.
Final Word
Tax saving FDs can be a useful tool for individuals to save on their tax liability while also earning a fixed rate of interest on their investments. These FDs come with a lock-in period of 5 years and offer tax benefits under Section 80C of the Income Tax Act. However, it is important to note that the interest earned on these FDs is taxable, and one must factor in this aspect while making an investment decision.
Looking for other-tax saving instruments? You can consider investing in ELSS Tax Saver Nifty 50 Index Fund with Navi Mutual Fund and claim tax deduction benefits of up to Rs.1.5 lakh today. Download the Navi app, explore funds and start investing.
FAQs
Tax Saving FDs are suitable for individuals who are looking to save taxes and earn a fixed rate of return on their investment.
The Tax Saving FD has a maximum investment limit of Rs. 1.5 lakh per financial year.
Investment in Tax Saving FD is open to both individuals and Hindu Undivided Families (HUFs). One can invest in Tax Saving FD through any public or private bank, except cooperative and rural banks.
Premature withdrawal is not allowed in Tax Saving FD as these deposits have a 5-year lock-in period.
Many taxpayers invest in a tax-saving FD as FD returns are fixed and not linked to market fluctuations.
When investing in a Tax Saving Fixed Deposit (FD), the current interest rate level is fixed for the entire lock-in period of 5 years. This means that even if the bank increases the interest rate for long-term FD tenure in the future, your Tax Saving FD will continue to earn the interest rate that was agreed upon at the time of investment. Therefore, if you invest in a Tax Saving FD at a lower interest rate of around 6.5%, you may miss out on potential higher returns if the bank increases the interest rate in the future.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
