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Tax Saving FD

Tax on FD Interest

Last Updated 23rd Sep 2020

Tax saving fixed deposit is a type of fixed deposit under which you can invest and claim a tax deduction under section 80C of Income Tax Act.

Tax Saving FD For Individuals and HUFs
Tax Exemption Limit Upto ₹ 1,50,000
Lock-in Period 5 Years
Deposit Tenure 5 to 10 Years
Loan Against FD Not Available

Tax Saving Fixed Deposit Interest

Investors may wonder, is FD interest taxable? Interest gained in the fixed deposit is subject to tax deduction. Tax on FD interest is deducted as per the tax slab rate category individual investors fall into. To get the tax slab rate, add the gained interest income to your total income. Banks and non-banking financial companies deduct TDS or Tax Deducted at Source if the gained interest is more than ₹ 10 in case of regular investors and ₹ 50 in case of senior citizens. TDS is generally deducted at a 10% rate; however, it goes up to 20% if the investor fails to show a PAN card. According to the income tax slabs for the financial year of 2020-21, tax rates are given below.

Income Tax Slab New Tax Rates FY 2020-21
Up to ₹ 2.50 Lakh None
₹ 2.50 Lakh – ₹ 5 Lakh 5% (Tax rebate of ₹ 12 available under section 87A)
₹ 5 Lakh – ₹ 7.50 Lakh 10%
₹ 7.50 Lakh – ₹ 10 Lakh 15%
₹ 10 Lakh – ₹ 12.50 Lakh 20%
₹ 12.50 Lakh – ₹ 15 Lakh 25%
₹ 15 Lakh and above 30%

Benefits of Tax Saving Fixed Deposit

With the tax-saving fixed deposits, inventors can enjoy the following benefits.

  • Avail tax exemptions under section 80C of Income Tax Act, 1961.
  • A maximum amount of ₹ 1.50 Lakh per financial year is subject to tax deduction.
  • Set a flexible tenure of 5 years to 10 years as per convenience.
  • Access to premature withdrawal after 5 year lock-in period.
  • Senior citizens can get a hike of upto 0.50% in interest rates.
  • Avail the facility of joint account; however, only the primary account holder is eligible for tax benefits under a joint account.
  • Insurance of ₹ 5 Lakh against bank fixed deposit in case of any default by the provider.

Eligibility Criteria for Tax Saving Fixed Deposit

To be eligible for opening a tax saving fixed deposit account at any bank, non-banking financial company or post office one must be

  • Indian Resident
  • Individuals
  • Hindu Undivided Families (HUF).

Top Banks on Tax Saving Fixed Deposits

Most of the banks and non-banking financial companies provide tax-saving fixed deposits. Before selecting any tax saving schemes, investors must find out the different interest rates along with other terms and conditions of the banks offering tax saving fixed deposit. Below is a brief discussion on various banks offering tax-saving FD.

SBI Tax Saving FD

SBI tax saving FD comes with the interest rates of 5.40% for regular accounts and 6.20% for senior citizen accounts. It offers a tenure of 5 years and tax benefits as per Section 80C of Income Tax Act, 1961. The minimum deposit for tax saving FD offered by SBI is ₹ 1,000 and the maximum amount for deposit is ₹ 1.50 Lakh. Investors can make multiple deposits via net banking.

HDFC Bank Tax Saving FD

HDFC tax saving FD offers an interest rate of 5.50% for regular investors and an interest rate of 6.00% for senior citizens along with a lock-in period of 5 years. The maximum amount for deposit is ₹ 1.50 Lakh, similar to SBI. However, the minimum amount is ₹ 100. Investors can opt for either a monthly or a quarterly payout.

ICICI Bank Tax Saving FD

Under the tax saving FD ICICI offers, investors can either invest in the traditional plan or the reinvestment plan. The traditional plan offers a monthly or quarterly payout. The reinvestment plan, on the other hand, pays quarterly compounded interest that is reinvested with the principal amount. The ICICI tax saver FD has the tenure of 5 years and a maximum deposit limit of ₹ 1.50 Lakh lakhs. The minimum amount for deposit is ₹ 10,000. The interest rates for regular investors is 5.50% and 6.00% for senior citizens.

Kotak Bank Tax Saver FD

Kotak Bank tax saver FD offers an interest rate of 5.25% for regular investors and 5.75 for senior citizens. The lock-in period is of 5 years and maximum deposit amount is ₹ 1.50 Lakh. The minimum amount for deposit is ₹ 100.

Axis Bank Tax Saving FD

Axis Bank tax saving FD comes with a tenure of 5 years and a maximum limit of ₹ 1.50 Lakh for deposits. It offers an interest rate of 5.50% for general accounts and 6.15% for senior citizen accounts.

Documents required for Tax Saving FD Account

The common documents required to open a tax saving FD account are mentioned below.

  • PAN (Permanent Account Number) Card
  • Aadhar Card
  • Passport
  • Ration Card
  • Voter ID Card
  • Passport
  • Address Proof (Government-recognised)
  • Age proof (for senior citizens)
  • Passport-size photographs.

FAQs

Is tax saver FD good investment?

Yes, tax saver FD is a good investment option as it reduces the rate of tax deduction on your income. The guaranteed returns make it a safe option as well. The tenure and payout can be set as per your convenience. Analyze the interest rate provided by various banks and non-banking financial companies before you start investing.

What is the minimum amount needed to open a Tax Saver FD account?

The minimum amount needed to open a tax saver FD account varies from one provider to another. For example, the minimum amount for ICICI tax saver FD is ₹ 10,000. SBI allows opening a tax saver FD account with a minimum deposit of ₹ 1,000. The lowest deposit amount, which is ₹ 100, is offered by HDFC tax saver FD.

Can we break tax saving FD?

Tax saving FDs that generally come with a 5 year lock-in period, do not allow any premature withdrawal. However, once the 5 year lock-in period has been completed, investors get access to premature withdrawal. The terms and conditions for premature withdrawal vary from bank to bank.

Which bank is best for Tax Saver Fixed Deposit?

Investors can find the best-suited tax saver fixed deposit by analyzing the return rates, tenure and other factors of the FDs. Based on the interest rates, the best banks for tax saver fixed deposits are HDFC, ICICI, IDFC, SBI and Yes Bank.

Is interest on 5 year FD taxable?

The interest on FDs is market to tax deduction under the 80C of Income Tax Act (196). However, the interest amount accumulated in the fifth year of FD is not taxable, as it is paid along with the maturity amount.

Which is better tax saver FD or PPF?

PPF generates a higher return rate than FD and the lock-in period of PPF is also longer than FD. As far as taxation is concerned, PPF is completely tax-free in the hands of investors, whereas, tax saving FDs are entirely taxable. So, tax saving FD has more liquidity but the PPF provides more tax benefits than tax saver FD.

Is the interest income free from taxation?

The interest income up to ₹ 10,000 is tax-free as per Section 80C of the Income Tax Act of 1961. However, tax is deducted at 10% when the interest income crosses the ₹ 10,000 mark. The rate of tax deduction turns to 20% from the standard rate of 10% when the investors fail to show a PAN Card. For senior citizens, the maximum limit is ₹ 50,000.


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