Tax Saving Fixed Deposit

A tax-saving fixed deposit gets you tax exemption under Section 80C. Checkout the highest interest rates, benefits and documents required for tax saving FD.
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Tax Saving FD
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3 mins
13 February 2024

What Is Tax Saving Fixed Deposit?

Tax-saving fixed deposit (FD) is an investment instrument that allows individuals to reduce their taxable income by up to Rs.1.5 lakh in a financial year. At the same time, they can also enjoy guaranteed earnings on their deposits.
It helps them grow their funds at a high and stable interest rate, which remains independent of market sentiment and volatility. Individuals who want to save tax, grow their money, and diversify their investment portfolio must know what this tax-saving FD is.

How does a tax-saver fixed deposit work?

Following are the insights regarding how tax saving FD works:

  • Booking of FD:
    After selecting a financial institution, individuals decide how much they will deposit and proceed with the account opening process.
  • Selection of maturity period:
    The lock-in period of tax saving FD is 5 years. Individuals can choose a maturity period longer than that.
  • Claim for tax deduction:
    After booking the tax-saving FD, individuals become able to claim tax deductions under Section 80C of the Income Tax Act.
  • Maturity value after TDS:
    The fund deposited in the account grows at a fixed FD rate. The earning on this FD is taxable and financial institutions provide the maturity value after subtracting the tax deducted at source or TDS.

Fixed deposit variants

Highest Credit Ratings | Trusted with over 1.4 million Deposits | Assured Returns on FD
New Product

Digital FD Only on App/Web

INTEREST RATES UP TO
8.85% p.a.
Invest Online

42 months

INTEREST RATES UP TO
8.85% p.a.
Open FD

FD - Age below 60

INTEREST RATES UP TO
8.50% p.a.
Open FD

Systematic Deposit Plan

INTEREST RATES UP TO
8.85% p.a.
Start SDP

FD - Senior Citizen

INTEREST RATES UP TO
8.85% p.a.
Open FD

FD – Special Tenure

INTEREST RATES UP TO
8.85% p.a.
Open FD

Features and benefits of tax-saving fixed deposit 

Tax-saving FD can help individuals secure the following benefits:

  • Tax deduction:
    As the name itself suggests, individuals can get tax benefits by investing in this fixed-income instrument. According to Section 80C of the Income Tax Act of India, they can reduce up to Rs.1.5 lakh from their gross taxable income. How much tax benefit they will earn depends on the amount they deposit in their account.
  • Flexible payout options:
    Certain financial institutions offer customers two types of payout options for fixed deposit, cumulative, and non-cumulative. In a cumulative payout, individuals receive the entire aggregated value of their deposit at once. On the other hand, they can choose monthly, quarterly, bi-annually, or annual payout of their fixed deposit earning by going with the non-cumulative option.
  • Longer maturity period:
    Tax-saving FD comes with a lock-in period of 5 years. Individuals can also choose to keep their amount deposited for a longer period. By staying invested for a longer time, individuals can maximise their earnings owing to the effect of compounding.
  • Guaranteed income:
    The interest rate of the tax-saving FD remains the same from its booking till the maturity period. Therefore, it becomes possible for individuals to measure what the maturity amount will be even before they invest in the FD. In fact, after booking, financial institutions provide a certificate of the FD that mentions the applicable interest rate, maturity amount, etc. In this regard, individuals can use a Fixed Deposit Calculator to know the maturity value of their deposits.
  • Lump sum deposit:
    With a fixed deposit, individuals can invest an amount of up to Rs.5 crore. Nevertheless, if the objective is only to reduce tax obligations, individuals can book an FD of up to Rs.1.5 lakh since Section 80C does not offer a tax benefit of more than that amount.

Things to consider regarding tax-saving fixed deposits

Here are different aspects that individuals need to check while booking their fixed deposit:

  • Interest rate:
    While booking a fixed deposit, individuals need to check and compare the tax-saving FD rate across several financial institutions. With a higher rate of interest, they can increase their earning potential significantly.
  • Time horizon for investment:
    Individuals may have different financial goals or sets of plans for their investments. For example, they may want to save and grow the fund for their child's education, or the marriage ceremony of their sons and daughters. Since it has a definite lock-in period of 5 years, they need to ensure that the planned events do not fall within this time frame.
  • Security rating:
    Individuals also should ideally check the security ratings of the tax-saving fixed deposits. Different credit agencies like CIBIL and ICRA provide safety ratings to help customers know how risky the fixed deposit account for a certain financial institution can be.

Comparison with other tax-saving investments

Investment Type

Returns

Lock-in Period

Tax on Returns

Tax saving FD

3% to 8%

5 -10years

Yes

Public Provident Fund (PPF)

7.1% (as of 01.01.2024)

15 years

No

National Savings Certificate (NSC)

7.7% (01.01.2024)

5 years

Yes

National Pension System (NPS)

9% to 12%

Till Retirement

Partially Taxable

 

Documents required for tax-saving FD

Individuals will have to submit the following documents while opening their tax-saving fixed deposit accounts:

  • Government-approved ID proof: Passport, ration card, driving licence, etc.
  • Proof of age:  Aadhaar Card, voter ID card, etc.
  • Residential proof: Telephone bill, passport, bank statement, electricity bill, etc.
    Recently clicked passport-size photographs.

Tax-saving fixed deposit is best for individuals who want to enjoy the dual benefit of growing their funds at a stable interest rate and enjoying a tax deduction.  Individuals willing to grow their money securely can now easily apply to open their fixed deposit accounts online. They can reduce their net taxable income by up to Rs.1.5 lakh, depending on how much they invest.

Calculate your expected investment returns with the help of our investment calculators

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Sukanya Samriddhi Yojana Calculator

PPF Calculator

EPF Calculator

Frequently asked questions

What is the Digital FD offered by Bajaj Finance?

Bajaj Finance has launched a new FD type called "Bajaj Finance Digital FD" for a period of 42 months. Bajaj Finance is providing one of the highest interest rates of up to 8.85% p.a. for senior citizens and for the customers below the age of 60 they are providing up to 8.60% p.a. The Digital FD can be booked and managed only through the Bajaj Finserv website or app.

Which FD is eligible for 80C?

Only 5-year tax-saving fixed deposits (FDs) qualify for tax deductions under Section 80C of the Income Tax Act. These specific FDs have a mandatory lock-in period.

Which FD is best for tax saving?

The best tax-saving FD depends on your goals. Consider interest rates, your tax bracket, and the bank's reputation. Compare offerings before choosing.

What is the difference between FD and tax saver FD?

Regular FDs offer flexibility – you can choose tenure and withdraw prematurely (with penalties). Tax-saving FDs are exclusively for Section 80C deductions, with a mandatory 5-year lock-in.

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