Fixed Deposit is a financial instrument that provides the opportunity to invest your money for a particular period of time and you earn fixed interest over your invested amount. You can open a Fixed Deposit in a bank and enjoy a fixed rate of return based on the type of Fixed deposit and the tenure for which FD has been made.
In this blog post we have tried to cover all the features and queries related to one of the popular tax saving options i.e.TAX SAVING FD also known as TAX SAVER FD.
What is A Tax Saving Fixed Deposit ?
As the name implies,a Tax saving Fixed Deposit or commonly known as 5 year Tax saving FD is a kind of fixed deposit that helps you to save your income tax to some extent.By investing your money in a Tax saving FD,you get a Tax deduction Under Section 80 C upto a maximum of Rs.1.5 lakhs.This tax deduction is for the amount invested in Tax Saver Fixed deposit.
You can open a Tax saver FD with a minimum amount of Rs.100 upto a maximum of Rs.1.5 lakhs. However,the minimum amount required for opening a tax saver FD may vary in different banks.
Tax Saver FDs have a lockin period of 5 years and premature withdrawal is not allowed.
Hence,tax saving FD is one of the various tax saving investments that qualify for tax deduction under section 80 C.
It provides you dual benefits of :
- Earning a fixed rate of interest and
- Tax benefits.
For details on other tax saving instruments you can have a look at one of our popular blog posts : Tax Deduction U/s 80 C -What are eligible investments ?
Who can open a Tax Saving FD ?
- All Resident Individuals (including Senior citizens > 60 years of age)
- HUF
- Non Resident Indians.
What is the Interest on Tax saving Fixed deposit ?
The interest on Tax saving FDs ranges between 7% to 8.5% per annum .However,senior citizens are offered a bit higher interest rates as compared to other individuals.
Different banks offer different fixed deposit rates and interest is normally calculated on a quarterly basis.
Here is a chart showing Tax saver FD Interest rates offered by 15 popular banks on Tax saver Deposit schemes in India.
| BANK NAME | GENERAL RATE OF INTEREST | RATE OF INTEREST - SENIOR CITIZENS | SCHEME NAME | |
|---|---|---|---|---|
| 1 | Axis Bank | 7.25% p.a. | 7.75% p.a. | Axis Bank Tax Saver Fixed Deposit |
| 2 | HDFC Bank | 7.50% p.a. | 8.00% p.a. | HDFC Bank Tax Saver Fixed Deposit |
| 3 | SBI Bank | 7.00% p.a. | 7.25% p.a. | SBI Tax Saving Scheme 2006 |
| 4 | Canara Bank | 7.00% p.a. | 7.50% p.a. | Canara Tax Saver Scheme |
| 5 | ICICI Bank | 7.50% p.a. | 8.00% p.a. | ICICI Bank Tax Saver FD |
| 6 | Bandhan Bank | 7.75% p.a. | 8.25% p.a. | Bandhan Bank Tax Saver FD |
| 7 | DCB Bank | 7.90% p.a. | 8.40% p.a. | DCB Bank Tax Saver FD |
| 8 | IDBI Bank | 7.40% p.a. | 7.90% p.a. | Suvidha Tax Saving Fixed Deposits |
| 9 | Yes Bank | 7.50% p.a. | 8.00% p.a. | Yes Bank Tax Saver FD |
| 10 | Andhra Bank | 7.50% p.a. | 8.00% p.a. | AB Tax Saver Deposits |
| 11 | Bank of Baroda | 7.30% p.a. | 7.80% p.a. | Baroda Tax Savings Term Deposit |
| 12 | Bank of India | 7.25% p.a. | 7.75% p.a. | Star Sunidhi Tax-Saving Deposit Scheme |
| 13 | Federal Bank | 7.25% p.a. | 7.75% p.a. | Federal Tax Savings Deposit |
| 14 | Bank of Maharashtra | 7.25% p.a. | 7.75% p.a. | Bank of Maharashtra Tax Saver FD |
| 15 | Central Bank of India | 7.25% p.a. | 7.75% p.a. | CENT Tax Saving Deposit |
*Fixed Deposit interest rates have been given on “as is” basis (as collected from bank websites) and are subject to change,please check for any changes with the respective banks before making any investments.
Is the interest on Tax saving FD taxable ?
The answer is YES…The interest on any kind of Fixed deposit i.e.tax saving FD or a simple Fixed Deposit is fully taxable.
The tax saving is only for the amount that has been invested in a Tax saving FD and not on interest earned.
Moreover, banks are instructed to deduct TDS @ 10% on interest on Fixed deposit, if the interest amount exceeds Rs.10000 during a financial year. Banks are authorised to deduct TDS@20% if PAN is not furnished.
Also, banks deduct tax on fixed deposits as and when interest is accrued and not when it is paid.TDS amount is shown in your Form 26 AS.So,it is always wise to pay tax on yearly basis and not when the FD matures.It is quite possible that when your FD matures,you might fall in a higher tax slab and thus end up paying higher taxes on the lump sum amount.
Interest on FD forms part of your “Income from other sources” that is a part of total taxable income.The tax is calculated on your total taxable income as per the Income tax slab rates.
For additional details on how to calculate tax on Interest on Fixed deposits you can go through: Fixed Deposit, FD Interest, Tax on FD – A complete guide!
What if we open a Tax saver FD in joint name ? Who will be eligible for tax deduction ?
If you open a joint Tax saver FD,only the first holder can claim the tax deduction under section 80 C.The second holder cannot claim such a deduction.
Important Features of a Tax Saving FD are :
| 1 | Tax Saver FD has a maturity period of 5 years. |
| 2 | It qualifies for Tax deduction under Section 80 C upto maximum Rs.1.5 lakhs. |
| 3 | Individuals,HUF and NRIs can invest in Tax saving FDs. |
| 4 | Premature withdrawl is not allowed. |
| 5 | Interest on Tax saver FD is fully taxable. |
| 6 | Loan facility is not available against tax saver FD. |
| 7 | Tax saver FD can be opened in Single name or Joint name. |
Hence,the next time you think about how to save tax, do consider the option to invest in a Tax saving FD that might help you get good returns and reduce your overall tax burden as well.
Feel free to give your valuable feedback and any queries thereon in the comment section below…
For comparative analysis between FD and mutual funds, do refer : Fixed Deposits or Mutual funds : Which is better investment ?