One of the most common strategies used by Indians for investment is fixed deposits(FD). Also, for the intention of tax benefit under Section 80C of the Income Tax Act.1961, due to elegance and assured returns, many favour tax-saving fixed deposits over other mechanisms such as PPF, 5-Year NSC, NPS that deliver decent returns. By investing in a tax saving FD one can reap tax benefits up to Rs 1,50,000 in a fiscal year. Important to note here is that, on different factors tax-saving FDs vary from regular FDs. Below are the 10 essential characteristics of tax-savings FDs that you must consider before parking your money.
- There is a lock-in period of 5 years on tax saving FDs which means premature withdrawal is not allowed before the specified duration.
- For opting a tax saving FD scheme only resident individuals and Hindu Undivided Families (HUF) are eligible.
- It is possible to open tax-saving FDs either individually or jointly. In the case of a joint holding, the tax gain under Section 80C can only be claimed by the primary holder.
- On these FDs, one can pick either a monthly/quarterly/annual interest payout preference. Even one can also have a compounding option for the reinvestment of interest gained.
- As per the income tax slab, the interest amount is added to your annual income which will be taxable and paid on a quarterly basis.
- At a rate of 10 per cent on the annual interest received on these FDs, banks subtract TDS. By submitting Form 15G/H to the bank at the beginning of the financial year you can avoid TDS.
- With the exception of cooperative banks and rural banks, tax-saving FDs can be opened at any public or private sector bank.
- As we are talking about 5-year tax saving FD, post office time deposit also allow you to reap tax benefits under Section 80C.
- You will not be allowed to make premature withdrawal or apply for a loan against tax saving FDs.
- The interest rates provided differ from bank to bank on these deposits. Although the lowest rate of tax-saving deposits i.e. 5.4 per cent is provided by leading commercial giant SBI, there are still some small finance banks that offer higher interest rates up to 6.75% on 5 year tax saving FDs.
Best Tax Saving FDs
|Banks||ROI in %|
|Equitas Small Finance Bank||6.75|
|AU Small Finance Bank||6.50|
Top 5 Commercial Banks That Offer Higher Return On Tax Saving FDs
Tax-saving fixed deposits are issued by the majority of banks and non-banking financial firms. Investors must consider the various interest rates along with other terms and conditions of the banks providing fixed deposit tax benefits before choosing any tax saving schemes. Here is a short discussion of the numerous tax-saving FD of the largest commercial banks of India.
|Banks||ROI in % for general public||ROI in % for senior citizens|
SBI Tax Saving FD
The interest rates for regular deposits is 5.4% and 6.20 percent for senior citizens are kept at SBI tax saving FD. As per Section 80C of the Income Tax Act, 1961, it provides a term of 5 years and tax deductions. The minimum deposit accepted by SBI for tax saving FD is Rs 1,000 up to a limit of Rs 1.5 lakh.
HDFC Bank Tax Saving FD
For regular investors, the HDFC tax saving FD provides an interest rate of 5.50 percent and an interest rate of 6.25 percent for senior citizens including a 5-year lock-in term. Similar to SBI, the maximum deposit balance is Rs 1.50 Lakh and the minimum limit is Rs 100. Investors can pick between a monthly or quarterly payout option.
ICICI Bank Tax Saving FD
investors can spend either in a traditional plan (provides a monthly or quarterly payout) or in a reinvestment plan (interest compounded quarterly reinvested with the principal amount) under the tax saving FD of ICICI Bank. One can deposit with a minimum limit of Rs 10,000 up to a cap of Rs 1.50 Lakhs in 5-year tax saving FD of this bank. The interest rates are 5.50 percent for regular investors and 6.30 percent for senior citizens respectively.
Kotak Bank Tax Saver FD
For regular investors the interest rate is 4.75 percent and for senior citizens the interest rate is kept at 5.25 per cent under Kotak Bank 5-year tax saver FD. The minimum and maximum deposit limit here is Rs 100 and Rs 1.5 lakhs respectively.
Axis Bank Tax Saving FD
Axis Bank 5-year tax saving FD proposes an interest rate for the general public 5.50 percent and for senior citizens 6.05 percent respectively. One can deposit in Axis Bank Tax Saving FD up to a limit of 1.5 lakh for a lock-in period of 5 years.