What are Tax Saver Fixed Deposits?


  • Having a low-risk appetite and wanting to save tax? Maybe a Tax Saver Fixed Deposit is the one for you!
  • Does it come with a lock-in period? Know this and more here!

Tax saver fixed deposits are one of the tax-saving instruments that offer you tax deductions upto INR 1.5 lakh in a financial year under Section 80C of the Income Tax Act. These deductions help reduce your tax liability and save you some to meet your expenses. But how does it work and what differentiates it from the regular fixed deposits? We feel you’ll be interested to know about this. Keeping that in mind, we have detailed all in this post, take a look.

How Does the Tax Saver Fixed Deposit Work?

Firstly, the tax saver fixed deposit comes with a lock-in period of 5 years, meaning you can’t withdraw from it for the said period. You can deposit a minimum and maximum of INR 10,000 and INR 1,50,000, respectively. But only lumpsum deposits are allowed over 5 years. The interest earned on the same is taxable.

How is it Different from a Regular Fixed Deposit?

Deposit AspectsTax Saver Fixed DepositRegular Fixed Deposit
Minimum Deposit AmountINR 100-10,000INR 10,0000
Maximum Deposit AmountINR 1,50,000No Max. Limit
Lock-in Period5 YearsYou can withdraw anytime, but the penalty will be levied if you do so before the maturity period
Periodicity of Deposits It can be there for a maximum of 10 yearsIt can be there for a maximum of 10 years
Tax BenefitsIt offers tax deductions upto 1.5 lakh a yearNo tax benefits available
Tax on interest earnedApplicableApplicable

Where Should You Open a Tax Saver Fixed Deposit Account?

Although the rules and regulations of tax saver fixed deposits are fixed by the government, you still have something to research to make maximum gains. Since the government does not fix the interest rate, you have the liberty to choose a bank that offers the maximum on your deposit amount. The interest rate is the same as that of a regular fixed deposit product. So, if you want to maximize your deposits, ensure you open it at a bank that earns you the maximum. Since the maximum deposit permitted is capped to INR 1.5 lakh, you must see the interest rate accordingly.

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In your best interest, it is also advisable that the bank you choose must have a good track record and a sound liquidity position. This has gained much noise after the likes of NBFCs restricting withdrawals on fixed deposits post the losses they faced owing to the infamous IL&FS crisis.

Keeping in mind the aspects of safety and profitability, we have come with a refined list of banks where you can open a tax saver fixed deposit account.

BanksFD Interest Rate for General Public (In Per Annum)FD Interest Rate for Senior Citizens (In Per Annum)
State Bank of India (SBI)5.70% 6.20%
HDFC Bank6.15%6.65%
ICICI Bank6.40%6.90%
Axis Bank6.50%7.00%
Bank of Baroda (BoB)6.15% for 5 years, 5.90% for 5-10 years6.65% for 5 years, 6.40% for 5-10 years
Punjab National Bank (PNB)6.05%6.55%
Canara Bank6.25%6.75%
Kotak Mahindra Bank5.50%6.00%
Bank of India6.20%6.70%

Who Should Look to Open This Deposit Account?

If you have a low-risk appetite and want safe and stable returns with tax benefits, tax saver FDs could prove best in your case. As the 5-year lock-in period will be there, you won’t be able to withdraw for the said period. But in hindsight, it instills discipline and earns you reasonably once the 5-year period is over. To earn more, it won’t be bad to continue till the maximum time i.e. 10 years.

How Can Tax Saver FDs Help You Save on Your Income Tax?

The eligible tax deduction under Section 80C and other deductions will be subtracted from the gross annual income. So, the tax will apply to the resultant amount and not the gross one. This will reduce your tax liability and save you more. An example below will help you understand better.

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Example – You earn INR 8 lakh (gross) a year and deposit INR 1.5 lakh in a tax-saver FD.  The tax officials will deduct INR 1.5 lakh from INR 8 lakh first. After that, a standard deduction of INR 50,000 will be allowed. That will drop the taxable amount to INR 6 lakh. Assuming you don’t invest in any other tax savers, your tax liability will be INR 32,500 a year. You can check out the calculation below.

Income Tax Calculation

Taxation AspectsAmount (In INR)
Taxable Income6,00,000
Tax upto 2.5 lakhNIL
Tax on amount exceeding 2.5 lakh-5 lakh12,500 (5% of 2,50,000)
Tax on amount exceeding 5 lakh-6.50 lakh20,000 (20% of 1,00,000)
Total tax (Annual) including 4% surcharge32,500

Monthly, a Tax Deducted at Source (TDS) of around INR 2,708.33 (approx.) will be deducted from your salary. The tax liability can even be zero if you invest in other tax savers. As per the current tax laws, income upto INR 5 lakh post eligible deductions will not have any tax for the individual.

What About the Tax on Your Interest Earnings from Tax Saver FDs?

Interest earned upto INR 40,000 (General Public) and INR 50,000 (Senior Citizens), respectively, in a financial year will be exempt from tax. The amount above the threshold will attract TDS at 10% provided you submit the PAN while opening the FD account. If you fail to furnish PAN, the TDS rate will rise to 20%.

How to Apply for the Tax Saver Fixed Deposit Scheme?

You can apply for the tax saver deposit scheme at the bank of your choice using any of the online and offline mediums. You can visit the official website of the bank wherein you need to mention your personal and professional details before submitting the application. As soon as the bank receives your application, it will check your details thoroughly and send an executive to pick the necessary KYC documents at your residence or office. The bank will check the document details and see whether they match with the one you provided online. If the details match, the bank will open your tax saver fixed deposit account with it. You can even go to the nearest branch and open this fixed deposit account.

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Documents Required

Identity Proof – PAN Card (Mandatory)

Address Proof – Voter ID/Passport/Aadhaar Card/Driving License/Electricity Bill/Telephone Bill/Mobile Bill

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