Tax-saving FDs have a fixed tenure of five years. These investment options give the investor benefit of tax deduction of up to Rs 1.5 lakh in a financial year under section 80C.
Tax-saving fixed deposits (FDs) are one of the popular investment plans as they serve both purposes of an investor — saving money on taxes and protects from market volatility as they are not linked with equities in any manner.
Tax-saving fixed deposits, unlike mutual funds and other investment tools, do not yield market-linked returns. They have a set interest rate and guaranteed returns for the duration of the loan. Interest from FDs can serve as a regular source of income for senior citizens, in addition to saving them money on taxes. Tax-saving FDs have a fixed tenure of five years. These investment options give the investor benefit of tax deduction of up to Rs 1.5 lakh in a financial year under section 80C.
Eligibility
Individuals and Hindu Undivided Families (HUFs) are the only ones who can invest in tax-saving FDs under existing tax laws. One can start a tax-saving FD with any bank, including the bank with which one already has a savings account, as long as the bank allows to do so without first opening a savings account.
One can also open tax saving FD without having an account with the bank, but the customer will have to go through a Know-Your-Customer (KYC) procedure. Self-attested copies of your ID proof (PAN), address proof (Passport, Driving License, etc.) and passport size pictures will be required to complete the KYC procedure. Tax saving fixed deposit can be opened jointly, however, a tax benefit can only be claimed by the first holder.
Interest payments of tax-saving FDs
The interest rate offered on such FDs varies across banks. One can choose from cumulative interest or non-cumulative options of tax-saving FDs which are normally offered by most banks. Cumulative option means that interest accrued on your principal will be re-invested and paid to you at the time of maturity. On the other hand, in case of the non-cumulative option, interest will be paid to you on a monthly/quarterly/half-yearly/annual basis as offered by the bank. Senior citizens usually get higher interest rates on tax-saving FDs.
Five banks offering best tax-saving FD interest rates
- DCB Bank 6.6%
- Indusind Bank 6.5%
- RBL Bank 6.3%
- IDFC First Bank 6%
- Karur Vysya Bank 5.9%
Taxation
TDS is applicable since the interest collected is taxable depending on the investor’s tax bracket. Deposit interest is paid either monthly or quarterly, or it can be reinvested. By submitting Form 15G (or Form 15H for senior persons) to the bank, a person can avoid TDS deduction on the interest earned.
