Tax Savings FD (Fixed Deposit)

Tax-saving fixed deposit is a secure 5-year investment that offers tax deductions up to Rs. 1.5 lakh under Section 80C, while the interest earned remains taxable.
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Tax Saving FD
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3 mins
15-May-2026

Tax-saving fixed deposits (FDs) help you grow your savings while reducing your tax liability. These special FDs offer deductions of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961. With a lock-in period of 5 years, they offer a secure way to invest and save on taxes.

Let me know if you want this styled for Bajaj Finance (which does not offer tax-saving FDs).


What is a Tax-Saving FD?

A Tax-Saving Fixed Deposit is a type of fixed deposit that offers tax deductions under Section 80C of the Income Tax Act. These FDs generally come with a mandatory lock-in period of 5 years and provide fixed returns at predetermined interest rates. They are commonly preferred by investors looking for stable returns along with tax-saving benefits.


Some key features of a tax saving tax saving fixed deposits

Key features of a tax-saving fixed deposit (FD) are-

  • Tax Benefits: A Tax-Saving FD allows you to claim an income tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961.
  • Lock-in Period: The investment has a mandatory lock-in period of five years.
  • Tax on Interest: The interest earned on a Tax-Saving FD is taxable and subject to TDS (Tax Deducted at Source).
  • Limited Flexibility: Premature withdrawals, loans against deposits, or overdraft facilities are not available for Tax-Saving FDs.
  • No Auto-Renewal: There is no automatic renewal feature for Tax-Saving FDs.
  • Flexible Interest Payouts: You can choose to receive interest monthly, quarterly, or reinvest it in the principal amount.
  • Fixed Interest Rates: The interest rate remains fixed for the entire five-year tenure.
  • Varying Interest Rates: Interest rates can vary across banks and between individual and HUF accounts.
  • Account Ownership: Tax-Saving FDs can be held individually or jointly. However, only the first account holder can claim tax benefits.
  • Lump sum deposit: With a fixed deposit, individuals can invest an amount of up to Rs.Rs. 3 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.

How does a tax-saver fixed deposit work?

Following are the insights regarding how tax saving FD works:

1. Booking of FD

After selecting a financial institution, individuals decide how much they will deposit and proceed with the account opening process.

2. Selection of maturity period

The lock-in period of tax saving FD is 5 years. Individuals can choose a maturity period longer than that.

3. 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.

4. Maturity value after TDS

The fund deposited in the account grows at a fixed FD rates 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
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Fixed Deposit - 60 Months

INTEREST RATES UP TO
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Fixed Deposit - Senior Citizen

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7.75% p.a.
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Fixed Deposit - Age below 60

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Fixed Deposit - Minor

INTEREST RATES UP TO
7.40% p.a.
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Fixed Deposit - HUF

INTEREST RATES UP TO
7.40% p.a.
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Fixed Deposit - Sole Proprietor

INTEREST RATES UP TO
7.40% p.a.
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Advantages of tax saving FD compared to other Section 80C investments

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:

  1. 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.   
  2. Factor in your income and tax bracket: Higher incomes generally translate to greater tax savings.
  3. Set realistic financial goals: Align your investment with specific goals like retirement planning or a down payment for a house.
  4. 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
 

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 TypeReturnsLock-in PeriodTax on Returns
Tax saving FD3% to 8%5 -10yearsYes
Public Provident Fund (PPF)7.1% (Q3 of FY 2024-25)15 yearsNo
National Savings Certificate (NSC)7.7% (Q3 of FY 2024-25)5 yearsYes
National Pension System (NPS)9% to 12%Till RetirementPartially 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

 

Investment Calculator
Fixed Deposit CalculatorSukanya Samriddhi Yojana CalculatorPPF Calculator
Recurring Deposit CalculatorProvident Fund CalculatorGratuity Calculator

Frequently asked questions

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

You can claim a tax deduction of up to Rs. 1.5 lakh in a financial year under Section 80C of the Income Tax Act by investing in a tax-saving fixed deposit. However, the interest earned on the FD is taxable as per your income tax slab.

What is the tax saving FD rule?

Tax-saving FDs have a lock-in period of five years and qualify for deductions under Section 80C. You cannot withdraw the amount prematurely or take a loan against the FD during this period. Interest earned is taxable and subject to TDS if it exceeds the specified limit.

Is a Tax Saver FD a Good Investment?

Tax-saving FDs are a good option for conservative investors who want guaranteed returns along with tax benefits under Section 80C. They offer capital safety and fixed interest, making them ideal for low-risk profiles. However, the returns are taxable and may be lower than other tax-saving instruments like ELSS.

Which FD is eligible for 80C?

To qualify for tax deductions under Section 80C, you must invest in 5-year tax-saving fixed deposits (FDs). These FDs have a mandatory lock-in period, meaning you cannot withdraw your funds before the 5-year term is complete.

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.

Is 5-year FD tax-free for 5 years?

Tax Saving Fixed Deposits have a 5-year lock-in period. The principal investment qualifies for a tax deduction under Section 80C, but the interest earned on the deposit is taxable according to your income tax bracket.

Can fixed deposit reduce tax?

Yes, investing in a tax-saving fixed deposit with a tenure of 5 years can reduce your taxable income. The principal amount invested in such an FD qualifies for a deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act.

Can I break a tax-saving FD?

No, tax-saving FDs come with a mandatory lock-in period of 5 years. You cannot break or withdraw from the FD before the completion of this period, making it a non-liquid investment option.

Does tax-saving FD come under Section 80C?

Yes, tax-saving fixed deposits qualify for a deduction under Section 80C of the Income Tax Act. The principal amount invested in these FDs is eligible for a deduction of up to Rs. 1.5 lakh, reducing your taxable income.

Are the interest earnings from Tax Saver FDs taxable?

Yes, the interest earned from Tax Saver Fixed Deposits is taxable and added to the investor’s total income as per the applicable income tax slab.

What are the minimum and maximum investment limits for Tax Saver FDs?

Tax Saver FDs generally require a minimum investment amount decided by the bank, while the maximum tax deduction allowed under Section 80C is Rs. 1.5 lakh annually.

How can I calculate the maturity amount of my Tax Saver FD?

The maturity amount of a Tax Saver FD can be calculated using the deposit amount, applicable interest rate, tenure, and compounding frequency offered by the bank.

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Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.