Tax-Saving Fixed Deposits
With tax-season just around the corner let us discuss about a tax-saving instrument with which you can reduce your tax burden – Tax-Saving Fixed Deposits.
Here are the common features of a Tax-Saving Fixed Deposit:
- These types of Fixed Deposits are offered only by banks.
- For joint accounts, tax saving will be allowed only to the first-holder.
- Accounts can be opened by any individual Indian residents or HUF.
- Tenure of such Fixed Deposit is 5 years.
- Investments up to Rs. 100000/- in Tax-Saving Fixed Deposits are exempted from tax u/s 80C of Income Tax Act, 1961 for one Financial Year only.
- Interest earned from Tax-Saving Fixed Deposit is taxable.
- Loans/overdrafts are not available in lieu of such Fixed Deposits.
- Sweep-in facility is also not allowed for these deposits.
- Premature withdrawals are not permitted within 5 Years.
Here are the current Interest Rates of some leading banks among many banks offering Tax-Saving Fixed deposits:
| BANKS | RATE FOR NON-SENIOR CITIZENS (%) | RATES FOR SENIOR CITIZENS (%) |
| Tamilnad Mercantile Bank | 10.00 | 10.25 |
| IDBI Bank | 9.50 | 10.00 |
| United Bank of India | 9.25 | 10.00 |
| Corporation Bank | 9.25 | 10.05 |
| State Bank of India | 9.25 | 9.75 |
| Oriental Bank | 9.50 | 9.75 |
| Karur Vysya | 9.00 | 9.50 |
| Indian Bank | 9.00 | 9.75 |
| ICICI Bank | 8.75 | 9.25 |
| HDFC Bank | 8.25 | 8.75 |
| Axis Bank | 7.25 | 8.00 |
As the interest earned from a Tax-Saving Fixed Deposit is taxable the net returns for a 10% interest-earning instrument for tax brackets of 10%, 20% and 30% are 8.97%, 7.94% and 6.91% respectively.
Now, let’s answer the all-important question of whether a Tax-Saving Fixed Deposit should be availed to save taxes or not. Well, I would suggest to avail it only if you have not exhausted the Rs. 100000/- investment limit u/s 80C. There are other instruments also u/s 80C, like insurance, ELSS, PPF, etc., which can get you tax savings and for a better yield than a Tax-Saving Fixed Deposit. Also we have to keep-in mind that the invested amount has to be locked away for 5-years and we cannot touch it whatsoever. So, if we focus on tax-saving along with growth, I think PPF is a much better option than a Tax-Saving Fixed Deposit.
This article is aimed for those people who were either not aware of such Fixed Deposits or wanted to know more about it. Have you invested in a Tax-Saving Fixed Deposit? What do you think about it? Please do share your views in the comments below.
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