/Tax-saving fixed deposits: Everything investors need to know
InvestmentMarch 23, 2021

Tax-saving fixed deposits: Everything investors need to know

​Earn interest, save tax

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​Earn interest, save tax

If you are looking for a safe tax-saving investment option then, fixed deposit (FD) is one of them. Tax-saving FD with bank is one of the most popular investment avenues in the section 80C basket of financial instruments as specified in the Income Tax Act. For tax-saving purposes, many people use this investment option as it is relatively less risky via-a-vis equity. Besides saving tax, interest from FDs can act as a source of regular income for senior citizens to help them finance old age expenses. Here is all you need to know about investing in tax-saving FDs with a bank.

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​Are you eligible?

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​Are you eligible?

According to tax laws, only individuals and Hindu Undivided Families (HUFs) can invest in tax-saving FDs. You can open a tax saving FD account either via your pre-existing bank account or via a new savings account with another bank. Check if the bank allows doing so without opening a new savings account.

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​Documents needed

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​Documents needed

In the case of you opening a new savings account, certain documents will have to be provided as you undergo the KYC procedure. You need to provide self-attested copies of your ID proof (PAN), address proof (Passport, Driving License etc.) and passport size photographs. Also keep the originals of the documents whose self-attested copy you are submitting because bank officials will verify the same before accepting your KYC form.

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​Minimum and maximum investment amount

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​Minimum and maximum investment amount

The minimum amount to pour into a tax-saving FD differs across banks. However, one cannot invest more than Rs 1.5 lakh in a financial year.

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​Interest payments

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​Interest payments

The interest rate offered on such FDs varies across banks. Senior citizens are usually offered higher interest rate on tax-saving FDs.

Further. you may pick between the cumulative interest or non-cumulative options of tax-saving FDs, 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 whereas in case of the non-cumulative option, interest will be paid to you on monthly/quarterly/half-yearly/annual basis, as offered by the bank.

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​Tenure of FD

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​Tenure of FD

Tax-savings fixed deposits come with a fixed five-year tenure. The Bank Term Deposit Scheme (2006) maintains that you cannot break these FDs before the expiry of the five-year period from the date of deposit.

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​Type of holding

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​Type of holding

Mode of holding for tax-saving FDs can be single or joint. In case of joint holding, tax deduction under section 80C is available only to the first or primary holder, as specified in the FD receipt.

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​Taxability

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​Taxability

Investment amount up to Rs 1.5 lakh in a financial year qualifies for income tax deduction under section 80C. However, note that interest paid/accrued on the principal is fully taxable in your hands. Such interest will be added to your income and taxed at the rate applicable to your income slab.

If interest payments on FDs with a single bank exceed Rs 10,000 in a financial year, then TDS will be deducted by the bank. To avoid TDS, one can submit Form 15G or Form 15H, as applicable.

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​Also keep in mind...

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​Also keep in mind…

  • Nomination facility is also available for these deposits.
  • Unlike a regular bank FD, which can be used as collateral against a loan, a tax-saving FD cannot be used as collateral or be pledged to get a loan.

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