Section 80C of the Income Tax Act offers deductions on several investment options, with ELSS and PPF being among the most popular. While these come with their benefits, tax-saving fixed deposits offer unique advantages:
- Guaranteed returns: Unlike ELSS, which is linked to market performance and carries risk, tax-saving FDs offer fixed, assured returns—ideal for conservative investors.
- Moderate lock-in period: Though ELSS has a 3-year lock-in, tax-saving FDs typically come with a 5-year lock-in—shorter than PPF’s 15-year term.
- Flexible investment range: While PPF and ELSS require minimum investments of Rs. 500, tax-saving FDs usually start around Rs. 10,000 and offer more flexibility in choosing your investment amount.
Let me know if you’d like to position this differently since Bajaj Finance doesn’t offer tax-saving FDs.
How much should you invest under the Tax Saving Fixed Deposit (FD) scheme?
Determining the ideal investment amount for Tax Saver FDs and tax saving FD requires a personalized approach. Consider factors like your income, existing tax liabilities, financial goals, and risk tolerance.
Here's a simple guide:
- Utilize a tax saving FD calculator: These online tools can estimate your potential tax savings based on your income, investment amount, and applicable tax rates.
- Factor in your income and tax bracket: Higher incomes generally translate to greater tax savings.
- Set realistic financial goals: Align your investment with specific goals like retirement planning or a down payment for a house.
- Consider your risk tolerance: While Tax Saver FDs offer lower risk compared to market-linked options, ensure the lock-in period aligns with your financial needs.
Who should invest in a tax saving fixed deposit (FD)?
Tax Saving FDs are ideal for individuals seeking a safe and reliable investment avenue coupled with tax benefits. Here are two main groups who could benefit:
Risk-averse investors
If you prioritize stability and guaranteed returns over high-risk investments like stocks, a Tax Saving FD offers a secure option. It ensures your principal amount remains safe while providing a fixed interest rate for the entire tenure.
Taxpayers seeking deductions
Individuals looking to reduce their taxable income can utilize Tax Saving FDs to claim deductions under Section 80C of the Income Tax Act. This is particularly beneficial for those in higher tax brackets, as it can significantly lower their tax liability.
Also read: Difference in Section 80C tax break on interest on NSC
Tax deductible on fixed deposits
Tax on fixed deposit investments depends on both the investment amount and the interest earned. While a tax-saving fixed deposit may qualify for deductions under the applicable provisions of the Income Tax Act, the interest earned remains taxable.
| Tax aspect | What it means |
| Tax deduction on investment | Eligible tax-saving FDs allow deductions of up to Rs. 1.5 lakh under Section 80C, subject to the prevailing tax provisions. |
| Tax on interest earned | Interest from fixed deposits is treated as Income from Other Sources and is taxable as per your income tax slab. |
| TDS on Interest | Banks or financial institutions may deduct TDS when the interest earned exceeds the applicable threshold during a financial year. |
| Impact on tax planning | A tax-saving FD helps reduce taxable income through eligible deductions while offering fixed returns over its five-year lock-in period. |
How to avoid TDS on FDs?
TDS on fixed deposits depends on your interest income and tax eligibility. While it may not always be possible to prevent TDS, you can take certain measures to reduce unnecessary deductions.
| Tip | How it helps |
| Submit Form 15G or Form 15H | If your total taxable income is below the applicable exemption limit, submitting Form 15G or Form 15H (for eligible senior citizens) can help prevent TDS on FD interest, subject to the Income Tax Act. |
| Choose the right primary account holder | In a joint FD, TDS is generally determined based on the primary holder's tax status. If the primary holder is eligible to submit Form 15G or Form 15H, it may help avoid TDS. |
| Track your total interest income | Monitor the interest earned across all eligible FDs with the same bank or financial institution. This helps you estimate when TDS may become applicable. |
| Keep PAN and KYC details updated | Providing valid PAN and updated KYC details helps ensure TDS is deducted at the applicable rate instead of a higher rate. |
| Claim a refund through your ITR | If TDS is deducted despite having no tax liability, you can claim the eligible refund when filing your Income Tax Return (ITR). |
This approach helps you manage TDS on fixed deposits efficiently while remaining compliant with the applicable provisions of the Income Tax Act. (updated)
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. They can reduce their net taxable income by up to Rs.1.5 lakh, depending on how much they invest.
Also read: 7 Tax saving investments to save tax under Section 80c
Things to consider regarding tax-saving fixed deposits
Here are different aspects that individuals need to check while booking their fixed deposit:
1. 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.
2. 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.
3. 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% (Q3 of FY 2024-25) | 15 years | No |
| National Savings Certificate (NSC) | 7.7% (Q3 of FY 2024-25) | 5 years | Yes |
| National Pension System (NPS) | 9% to 12% | Till Retirement | Partially Taxable |
Conclusion
If guaranteed returns, low risk, and steady growth are your top priorities, a Fixed Deposit is a dependable investment choice. While Tax Saving FDs offer deductions under Section 80C, they come with a mandatory five-year lock-in. Bajaj Finance Fixed Deposits, though not tax-saving instruments, provide higher interest rates, flexible tenures, and the convenience of online investing—making them a compelling option for those focused on wealth creation and financial security.
Calculate your expected investment returns with the help of our investment calculators
