Tax saving is an integral part of one's finances. There are several investment options available in the markets that help investors in building wealth along with saving taxes. Among these, tax-saving fixed deposits (FDs) are deemed as one of the safest savings options. The amount invested in these is completely protected and the returns are also guaranteed.
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What is the tax benefit of tax-saving FDs?
Tax saving FD, a special category of fixed deposit, allows investors to claim deductions under Section 80C of the Income Tax Act. Any investor can claim a deduction of a maximum of Rs 1. 5 lakh by investing in tax-saving fixed deposits.
In the case of joint accounts, only the first holder is eligible for deduction from income under Section 80C of the Income Tax Act.
Who can invest in this?
Individuals and HUFs (Hindu undivided family) can invest in the tax-saving fixed deposit (FD) scheme. One can open a tax-saving FD in a single and joint account.
What is the lock-in period and how can one open it?
These tax-saving FDs have a minimum lock-in period of five years. Investors can open tax-saving FD accounts online or by visiting a bank branch.
What are the interest rates offered here?
Different banks offer different interest rates on tax saving FDs. The interest rates for Indian citizens and HUFs vary from bank to bank. Senior citizens and bank staff members are offered higher interest rates.
| Bank | Interest Rates (Regular Public) | Interest Rate (Senior Citizens) |
| State Bank of India | 5.40% | 5.90% |
| Kotak Mahindra Bank | 5.30% | 5.80% |
| HDFC Bank | 5.30% | 5.80% |
| Punjab National Bank | 5.25% | 5.95% |
| IDFC Bank | 5.25% | 5.75% |
| Deutsche Bank | 6.25% | 6.25% |
| Axis Bank | 5.75% | 6.25% |
| DCB Bank | 5.95% | 6.45% |
| Bank of Baroda | 5.25% | 5.75% |
| Lakshmi Vilas Bank | 5.75% | 6.25% |
(Source: Bankbazaar)
Interest on income tax-saving deposits is payable on a monthly or quarterly basis. The interest amount earned can be also reinvested if the investor wants so.
Is the interest taxable?
The interest is taxable, deducted at the source, and added to the income.
How is it different from other FDs?
They come with a lock-in period of 5 years. Just like other fixed deposits, returns on a tax-saving FD are fixed for the term of the FD. However, investors cannot make any premature or partial withdrawals from tax saver deposits, said Sujit Bangar, Founder at Taxbuddy.com.
Is a nomination facility available?
A nomination facility is available for these FDs. However, no nomination facility is available in case the deposit is applied for and held by or on behalf of a minor.
Who should invest in a tax-saving FD?
Anyone looking for a shorter lock-in period and seeking a guaranteed return with a tax-saving option should invest in tax-saving fixed deposits, according to Clear.
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