Fixed Deposits (FDs) are, traditionally, the most popular form of savings in India. Higher interest rates, guaranteed returns and lesser maintenance are among the many reasons why one should opt for a fixed deposit. Tax-saving Fixed Deposit is a form of FD and is increasingly becoming popular among investors for its own great advantages. Under section 80C of the Income Tax Act, one who invests in tax-saving FDs can claim a deduction of up to Rs 1.5 Lakhs from his income. In case it is jointly held, the benefits will only be available to the first holder.

Apart from being tax-friendly, these FDs also offer you guaranteed returns. A number of public sector and private sector banks like Axis Bank, HDFC, SBI, PNB and ICICI Bank offer tax-saving FDs. Though the schemes offered by the banks may be different, each one surely provides guaranteed interest returns at rates higher than the normal fixed deposits.


Here are 10 important things you need to know about tax-saving fixed deposits

1. 5-Year Lock-in Period

The most important point to know before investing in a tax saving FD is that it has a lock-in period of 5 years. This means that the FD matures only after 5 years and no premature withdrawals, overdraft facilities or loans are allowed on this instrument. This can be seen as a benefit and a drawback at the same time. If you are looking for a shorter lock-in period with guaranteed returns, this is the best option. But if you don’t want to lose the liquidity of your funds even for the shortterm, it might not be attractive for you.

2. Minimum Amount and Interest Rates Vary

The minimum amount for tax-saving fixed deposit varies from bank to bank and so does the interest rate. However, interest rates on tax saving FDs are higher than the normal FDs given the fund lock-in, thus making it necessary to compare FD interest rates. Some banks also provide a higher interest rate to their employees and senior citizens. The rate offered to you by the bank remains the same throughout 5 years. Interest is taxable and is added to your income after tax deduction at source. But if you want to opt out of TDS and pay the lump sum at maturity, you should inform your bank about it.

The table given below shows the interest rates offered by some popular banks-

Banks Tax-Saver FD Interest Rates
General Senior Citizens
ICICI Bank 6.75% 7.25%
State Bank of India 6.25% 6.75%
Axis Bank 6.25% 6.75%
HDFC Bank 6.00% 6.50%
IDBI Bank 6.00% 6.50%
IDFC Bank 7.20% 7.70%
Yes Bank 7.10% 7.60%
Kotak Mahindra Bank 6.00% 6.50%
Deutsche Bank 7.50% 8.00%
IndusInd Bank 6.75% 7.25%

3. Tax Benefits under Section 80C

As mentioned above, tax-saving fixed deposits are eligible for tax deduction u/s 80C of the Income Tax Act. This rule is applicable across the board, whether you invest in SBI Fixed Deposit or Axis Bank’s FD or any other bank’s tax-saving term deposit options. The amount so invested will be deducted from the gross income of the assessee to calculate his taxable income. The maximum deduction allowed towards tax-saving FDs is Rs 1.5 lakhs.

4. Only Individuals and HUFs are Eligible to Invest

It should be noted that only Indian individuals, non-resident Indians (NRIs) and Hindu Undivided Families (HUFs) can invest in a tax-saving fixed deposit. Any business, corporate entity or minor cannot invest in these instruments.

5. Interest is payable monthly or quarterly

Though the schemes vary from bank to bank, most of them offer the monthly or quarterly scheme. The interest will be credited according to the choice of scheme made by you. If you have opted for a monthly scheme, then the interest on FD will be given to you on monthly basis and quarterly in case of the quarterly plan. If you wish to reinvest the interest as it accrues, you must choose a scheme that offers this facility. Reinvesting the interest is a wise idea as it adds on to the total amount invested and ultimately increases the amount of next interest.

6. Tax Saving Fixed Deposits are risk-free

The bank offers you regular interest throughout the five year tenure. This interest rate is fixed and has nothing to do with the existing monetary scenario in the country unlike mutual funds or equities. Hence, your money is protected and the returns are also guaranteed. It also gives you the freedom to start small; you don’t have to lock-in a huge amount.

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7. Nomination Facility is available

Tax-saving fixed deposits also offer nomination facility. So in case the holder dies before maturity of the FD, the amount along with the interest returns goes to the nominee when the FD matures. In order to take benefit of this facility, one has to fill in the details of a nominee at the time of investing.

8. Investment through Public/Private Sector Banks

One can invest in a tax saving FD through any public or private sector bank. But the same cannot be done through cooperative banks like Mehsana Urban Co-Op Bank, Janalaxmi Co-operative Bank, etc. and rural banks like Andhra Pradesh Grameena Vikas Bank, Dena Gujarat Gramin Bank, etc.

9. Joint Holding is allowed

One can also invest in a tax saving fixed deposit along with a joint holder but the tax benefit will be offered only to the primary holder.

10. Post Office Time Deposits also offer Tax Benefits u/s 80C

In addition to tax saving fixed deposits, post office time deposits are also eligible for tax deduction under section 80C of the Income Tax Act. It is also considered as a good tax saving instrument. Time deposits also come with the ease of being transferred from one post office to other without hassles.

Fixed deposit is the easiest form of saving and investment in India. The application process for fixed deposits is simple and hassle-free. It is preferred by the people because of its risk-free nature and guaranteed returns. Nowadays, a number of banks have made the application process completely online through the open-it-yourself feature. If you have completed the KYC procedure at your bank, you do not even have to visit a branch to open the FD. Just log on to the official website of the bank and fill out the FD form.

So if you are thinking of investing your funds in an FD, it is better to choose tax-saving fixed deposits as these give you guaranteed returns and at the same time help you save tax.