Fixed deposits (FD) are considered as one of the most popular schemes for saving. Even for the purpose of tax-saving under Section 80C of the Income Tax Act.1961, many prefer tax-saving fixed deposits because of convenience and guaranteed returns over other instruments like PPF, ELSS, ULIP, NPS that offer better returns.
In tax-saving FDs, one can save up to Rs 1,50,000 in a financial year. On various counts, tax-saving FDs differ from normal FDs.
Check out 10 salient features of tax-savings FDs:
-Tax-saving fixed deposits come with a lock-in period of five years, before which you cannot withdraw your money.
-Only resident individuals and Hindu Undivided Families (HUF) can open these deposits.
-Tax-saving FDs can be opened either in single or in joint names. In case of joint holding, only the first holder can claim the tax benefit under Section 80C.
-One can choose either monthly/quarterly/annual interest payout option on these FDs. You can also choose the compounding option wherein interest earned will be re-invested.
-Interest earned on tax-saving fixed deposits is taxable. The interest amount gets added to your annual income and will be taxable as per your income tax slab. Interest payable is calculated on a quarterly basis only.
-Banks deduct TDS (tax-deductible at source) at the rate of 10% on the annual interest earned on these FDs. If you are exempt from paying tax, you need to submit form 15G/H at the beginning of the financial year with the bank.
-Tax-saving FDs can be opened through any public or private sector banks except co-operative banks and rural banks.
-The post office term deposit of five-year also qualifies for deduction under Section 80C.
-You can neither do premature withdrawal nor take a loan against tax-saving fixed deposits.
-Interest rates offered on these deposits vary from bank to bank. While large banks like State Bank of India offer the lowest rate on tax-saving deposits, some of the smaller private sector banks offer attractive rates on these deposits.
Banks that offer the best rates on 5-year tax-saving deposits to non-senior citizens:
| Banks | Interest rates |
| DCB Bank | 6.75% |
| Yes Bank | 6.75% |
| Indusind Bank | 6.50% |
| RBL Bank | 6.25% |
| AU Small Finance Bank | 6.50% |
| Deutsche Bank | 6.00% |
| Karur Vysya Bank | 5.65% |
| Ujjivan Small Finance Bank | 5.55% |
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