Tax Saving FD

5paisa Research Team Date: 27 Apr, 2023 07:24 PM IST


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Tax Saving FD is a kind of investment choice that let customers deposit funds and receive a greater interest rate than conventional savings accounts. Additionally, individuals can seek tax deductions under section 80C of the Income Tax Act by investing in a 5-year tax Saving Fixed Deposit since investments in this sort of FD are not tax deductible.

What is Tax Saving Fixed Deposit?

Tax Saving Fixed Deposit is a financial option offered by banks and non-banking financial companies (NBFCs) that requires an individual to deposit a large sum of money for a certain period of time. However, this form of FD has a 5-year lock-in term, which means the investor cannot withdraw the money prematurely The sum of the FD is credited to the investor's connected savings account at maturity. Furthermore, investors who choose Tax Saving FDs can receive a tax deduction of up to Rs.1.5 Lakhs on the amount invested.

Key Features of Tax Saving Fixed Deposits

Tax saving fixed deposits come with several features, such as:

●    Tenure: Tax Saving FDs have a set duration of five years, which means the investor cannot remove the funds before the maturity term finishes.

●    Interest Rates: Since these FDs provide greater interest rates than conventional savings accounts, they are an appealing investment alternative for those wishing to save taxes.

●    Minimum Investment: You can begin investing in this plan with as little as Rs.1000. Nevertheless, the minimum deposit amount necessary for tax free FDs varies per bank.

    Nomination Facility: Tax Saving FDs, like other investment alternatives, provide the investor with a nomination facility. 

Points to remember while investing in Tax Saving FD

Here are some key considerations to remember while investing in Tax Saving Fixed Deposits (FDs):

●    Lock-in Period: Tax Saving FDs feature a 5-year lock-in term, which means the investor cannot take the money before the maturity period finishes. It is critical to keep this in mind when considering this choice.

●    Interest Rate: Interest rates on Tax Saving FDs may differ from one bank to the next. Investors should examine the interest rates given by several banks and select the one with the greatest rate.

●    Eligibility: Before investing in any Tax Saving FD, individuals must check whether they are eligible to do the same or not. Doing so will save time and other complications. 

●    Nomination Facility: Investors should choose a beneficiary who will receive the maturity amount in the event of their death.

●    Investment Limit: The maximum investment limit in Tax Saving FDs every fiscal year is Rs. 1.5 Lakhs. It is critical not to surpass this limit in order to prevent penalties or legal ramifications.

●    Renewal Possibilities: Once the FD matures, investors should check to see if the bank has automatic renewal alternatives. If not, they should manually renew it or invest in another Tax Saving FD.

●    Post Office Time Deposit: A 5-year Post Office Time Deposit investment can also assist an individual claim tax deductions under section 80 (C) of the Income Tax Act of 1961. These deposits can be transferred from one post office to another, providing more flexibility to the investor. 
Moreover, while creating a Post Office Time Deposit account, one can choose between a 'single' or a 'joint' method of holding. The tax benefit, however, will only be available to the principal account holder if the account is held jointly.

●    TDS: The interest generated on Tax Saving Fixed Deposits is taxed in accordance with the investor's tax bracket. Moreover, banks deduct TDS when the interest payable or reinvested on fixed deposits surpasses Rs. 40,000 (Rs. 50,000 for senior people) in a fiscal year.

Documents Required for Tax Saving Fixed Deposits

The following are the documents generally required for investing in Tax Saving Fixed Deposits (FDs):

●    PAN Card: A copy of the Permanent Account Number (PAN) card is mandatory for opening a tax-saving FD account.

●    Identity Proof: Any government-issued identity proof such as Aadhaar Card, Passport, Voter ID Card, Driving License, etc., that establishes your identification is required.

●    Address Proof: Any government-issued address proof such as Aadhaar Card, Passport, Voter ID Card, Driving License, etc., is required for the KYC process.

    Passport size photograph of the investor is required for the account opening process.

●    Tax Deduction Form: A signed tax deduction form is required to claim tax benefits under section 80C of the Income Tax Act.

●    Account Opening Form: The bank's account opening form needs to be filled out and signed by the investor.

Please note that the exact documents required may vary from bank to bank. It is advisable to check the bank's website or contact their customer service representatives for more information.

Points to note while submitting the documents

Here are a few points to keep in mind while submitting the documents for Tax Saving Fixed Deposits:

●    Ensure that all the documents are self-attested and signed.
●    Verify that all the documents are complete and legible.
●    Ensure that the name and other details in the documents are consistent with the information provided in the account opening form.
●    The form must be filled in capital letters.
●    Overwriting must be avoided as this may lead to application rejection. 
●    Keep a copy of all the documents submitted for future reference.
●    Follow up with the bank to ensure that the account opening process is completed smoothly.

Comparison of FD Rates

Every financial institution has its own FD rates and comparing them before locking any decision is required in order to choose the plan with more benefits. Thus, to assist you in the same, here is the list of some financial institutions and their FD rates. 

Financial Institution                   

FD Rates

State Bank of India

4.50% to 6.50%

Axis Bank

5.75% to 7.00%


4.50% to 7.00%

Bajaj Finance

6.55% to 7.40%


4.75% to 6.90%

Bank of Baroda

4.50% to 6.26%


2.70% to 4.80%

Canara Bank

4.50% to 6.50%

Punjab National Bank

3.25% to 5.65%

UCO Bank

2.75% to 5.00%

Indian Bank

3.25% to 5.65%

Yes Bank

3.25% to 6.50%

Post Office

5.50% to 6.70%

Union Bank of India

3.00% to 6.70%

IDFC First Bank

2.75% to 4.20%

RBL Bank

3.25% to 6.00%

Disclaimer: Please note that the interest rates offered by these banks may vary depending on the amount invested, tenure of the deposit, and other factors. It is advisable to check the latest rates on their respective websites or contact their customer service representatives for more information.

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Frequently Asked Questions

One can claim a tax deduction of up to Rs. 1.5 Lakhs per financial year under Section 80C of the Income Tax Act for investments made in Tax Saving Fixed Deposits. This deduction is available only to individuals and Hindu Undivided Families (HUFs).

No, individuals can’t withdraw money prematurely. The Bank Term Deposit Scheme 2006 stipulates that withdrawing Tax Saving Fixed Deposits before the completion of the five-year term is not permitted.

These FDs are considered safe as they are not linked to market fluctuations or volatility.

When a Tax Saving Fixed Deposit (FD) matures, the invested amount along with the interest earned is credited to the investor's savings account linked to the FD. 

Here is the list of people who can invest in tax saving FD:

●    This is an ideal investment option for individuals and Hindu Undivided Families (HUFs) looking to save on taxes and earn a guaranteed return on their investment. 
●    These are suitable for investors who are risk-averse and prefer a low-risk investment option. 
●    Tax saving FDs are suitable for investors who have a short-term investment horizon of five years and do not require liquidity during this period.