Tax-saving fixed deposits: Check rates, taxation, investment details of top 10 banks

Fixed deposits (FD) are stable fixed-income instruments that are not impacted by market fluctuations. Unlike stocks, which can experience significant price and return variations due to market volatility, FDs offer a reliable and predictable return on investment. While equity dividends can be inconsistent, FDs provide a steady interest rate that remains constant throughout the deposit period, allowing for effective income and budget planning.

Tax-saving fixed deposits have a tenure of 5 years and qualify for a tax deduction under Section 80C of the Income Tax Act, 1961. These FDs have a lock-in period, preventing premature withdrawals. Additionally, the interest earned on these deposits is subject to taxation.

Eligibility 

Individuals and Hindu United Families (HUF) can avail a tax deduction of up to Rs.1.5 lakh by investing in tax-saving fixed deposits as allowed by Section 80C of the Income Tax Act. The invested amount will be deducted from the total gross income to calculate the taxable income. These fixed deposits have a lock-in period of 5 years and do not allow premature withdrawals or loans.

The minimum deposit amount is determined by the bank, and investments can be made through private or public sector banks, excluding cooperative and rural banks. Fixed deposits can be held individually or jointly, with the tax benefit applicable to the first holder in case of a joint investment.

Benefits of Tax-Saving Fixed Deposits

Fixed deposits offer a greater potential for earning interest as compared to savings accounts. With FDs, you can only make a lump sum deposit once. The interest earned on fixed deposits is subject to TDS. To be eligible for tax benefits, you must maintain a minimum tenure of five years, but this can be extended for a longer period if needed.

Top 10 banks with best FD rates for tax-saving schemes

Bank                                Interest Rates (General)         Interest Rate (Senior Citizens)

State Bank of India          6.50%                                     7.50%

Kotak Mahindra Bank      6.20%                                     6.70%

HDFC Bank                     7.00%                                     7.50%

Punjab National Bank      6.50%                                     7.50%

IDFC Bank                       7.00%                                     7.50%

Axis Bank                         7.00%                                     7.75%

DCB Bank                        7.40%                                     7.90%

Bank of Baroda                6.85%                                     7.35%

RBL Bank                         7.10%                                     7.60%

Source: Bankbaazar.com

Investment details

To open a Tax Saving FD account, you will need the following documents:

Permanent Account Number (PAN) Card
Government-recognized ID proof:
Aadhar Card
Driving Licence
Passport
Ration Card
Voter ID Card
Government-recognized address proof
Proof of age (for senior citizens)
2 recent color passport-size photographs.