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Tax saver fixed deposit is a type of deposit scheme in which you can get tax deduction under section 80C of the Indian Income Tax Act, 1961. Any investor who makes an investment in tax saver FDs can claim a deduction on the investment amount up to Rs 1.5 lakh.

Also, investors can nominate/authorize someone to withdraw the deposit amount before or post maturity in the event of their demise.

It might sound a bit different but tax-saving FDs are the same as any other bank fixed deposits as the maturity amount (principal amount + FD Interest) is credited directly to your bank account.

The Lock-in period of these deposits is 5 years and the tax-saving FD interest rates range from 5.5% – 7.75%.

However, the interest earned from these types of FD schemes is taxable. If you have not thought about any tax-saving investments yet and need a safe and easy bet for saving tax then a tax-saving fixed deposit could be the best fit for you.

Key Features of Tax Saving Fixed Deposits

  • Easy way to save tax under section 80C of the Income Tax Act
  • Benefits of both Tax savings and High returns
  • The minimum deposit amount is as low as Rs. 1000
  • The maximum deposit one can do in a financial year is Rs. 1,50,000
  • The tenure (lock-in) is 5 to 10 years
  • Nomination facility is available

Points to remember while investing in Tax Saving FD

Here are a few points to note before you decide to make an investment in tax- saving FD:

1. Tax saving FD Eligibility: Only Individuals and HUFs are eligible to invest in tax saving fixed deposit(FD) schemes. However, a minor can also invest jointly with an adult.

2. Minimum Deposit: Tax saving fixed deposits can be opened with a minimum deposit amount which varies from bank to bank. The maximum amount is fixed which is Rs. 1.5 lakh in a financial year which is also the cap for tax-saving investments under section 80C of the income tax Act.

3. Lock-in Period: The lock-in period for these deposits is 5 years.

4. Premature Withdrawal and Loan Facility: Premature withdrawal and loan against these tax-saving FDs are not allowed.

5. Where to invest: Investment in these FDs can be done through any public or private sector bank except for co-operative and rural banks.

6. Post Office Time Deposit: Investment in Post Office Time Deposit of 5 years is also counted for deduction under section 80 (C) of the Income Tax Act, 1961. Post office fixed deposits are transferable from one post office to another.

These FDs can be opened either in a ‘single’ or ‘joint’ mode of holding. If the account is joint, the tax benefit will only be available only to the primary account holder.

7. TDS: The interest earned is subject to TDS as per the investor’s tax bracket. The interest on these deposits is paid out on either monthly/quarterly basis or it can be reinvested. The TDS can be avoided by submitting Form 15G (or Form 15H for senior citizens) to the bank.

For individuals, TDS is applicable if the total interest earned exceeds Rs 40,000 in a financial year with no change in the taxation of interest income. Senior citizens can claim a deduction up to Rs 50,000 on the interest earned from deposits under section 80TTB.

8. Nomination: Nomination facility is provided by these FDs. However, nomination facility is not available in case the deposit is applied for and held by or on behalf of a minor.

9. Tax Saving FD Senior Citizen Interest Rates: Most of the banks offer a bit higher interest rates on Fixed Deposits to senior citizens (as compared to the interest rate offered on the same FD to a non-senior citizen). This difference in interest rate exists for tax saving FDs also. However, the post office does not offer higher tax saving FD interest rates to senior citizens.

Documents Required for Tax Saving Fixed Deposits

Identity and address proof is required to open a tax-saving deposit in banks and post offices. You can submit any of the following documents from identity and address proof:

Identity Proof

  • Passport
  • PAN card
  • Voter ID card
  • Driving license
  • Government ID card
  • Senior citizen ID card

Address Proof

  • Passport
  • Telephone bill
  • Electricity bill
  • Bank Statement with Cheque
  • Certificate/ ID card issued by Post office

Points to note while submitting the documents

  • You can submit any other identity proof or address proof document; subject to the chosen Bank’s norms.
  • You must produce the original document(s) for verification & a photocopy of each document.
  • The form must be filled in CAPITAL LETTERS using Black ink (subject to bank discretion)
  • Please countersign if there is any overwriting
  • Please avail of the nomination facility.
  • A permanent address and telephone number are mandatory to provide.

Tax Saving FDs – FAQs

Ques. How much tax deduction one can claim with tax-saving FDs?

Ans. Salaried employees may claim a deduction of up to Rs 1.5 lakh under Section 80CCD(1) for their own contributions towards NPS account

Ques. Who should invest in Tax saving FD?

Ans. Anyone guaranteed return tax­-saving option along with a shorter lock-in period should invest in these fixed deposits.

Ques. Is there any risk in tax­-saving FD?

Ans. Tax­ saving fixed deposits are completely risk-free. The invested amount is completely protected and the returns are also guaranteed.

Ques. What happens when tax­-saving FD matures?

Ans. The money is credited into your account once the fixed deposit term ends.

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