What is a Tax-Saving Fixed Deposit?
A Tax-Saving Fixed Deposit is a fixed deposit scheme offered by banks and financial institutions in India that provides tax benefits under Section 80C of the Income Tax Act, 1961. The amount invested in these FDs can be claimed as a deduction from taxable income up to a limit of ₹1.5 lakh per financial year.
- Lock-in period: Typically 5 years (mandatory).
- Interest: Fixed and payable monthly, quarterly, or at maturity.
- Tax Benefit: Investment eligible for deduction under Section 80C.
Benefits of Tax-Saving Fixed Deposits
| Benefit | Explanation |
|---|---|
| Tax Deduction | Investment qualifies for deduction up to ₹1.5 lakh under Section 80C. |
| Guaranteed Returns | Fixed interest rates offering predictable and stable returns. |
| Safety | Backed by banks, thus low risk with principal protection. |
| Flexible Interest Payout | Interest can be received monthly, quarterly, or at maturity. |
| Loan Facility | Some banks allow loans against FDs after a certain period. |
| No TDS on Interest | Interest income from tax-saving FDs is taxable but no TDS deduction by banks. |
Risks of Tax-Saving Fixed Deposits
| Risk | Explanation |
|---|---|
| Lock-in Period | Funds are locked for 5 years; premature withdrawal is not allowed. |
| Taxable Interest | Interest earned is fully taxable as per your income slab. |
| Inflation Risk | Returns may not keep pace with inflation, reducing real returns. |
| Lower Returns than Market | Fixed returns can be lower compared to equities or mutual funds. |
| Bank Risk | Though low, risk exists if the bank defaults (generally rare). |
Top 10 Tax-Saving Fixed Deposit Plans in India (2025)
| Bank/Institution | Interest Rate (approx) | Lock-in Period | Pros | Cons |
|---|---|---|---|---|
| State Bank of India (SBI) | 6.10% p.a. | 5 years | Trusted bank, wide network, loan facility | Moderate interest rate |
| HDFC Bank | 6.25% p.a. | 5 years | Good customer service, flexible interest payout | Slightly higher minimum deposit |
| ICICI Bank | 6.25% p.a. | 5 years | Strong online presence, regular interest payouts | Interest taxable |
| Axis Bank | 6.15% p.a. | 5 years | Competitive rates, flexible tenure options | Moderate bank charges |
| Punjab National Bank (PNB) | 6.00% p.a. | 5 years | PSU bank, safety of principal | Slightly lower interest rate |
| Bank of Baroda | 6.10% p.a. | 5 years | Public sector bank, good reliability | Customer service varies regionally |
| Kotak Mahindra Bank | 6.25% p.a. | 5 years | High interest rates, quick processing | Limited branch network |
| IDFC First Bank | 6.40% p.a. | 5 years | Higher interest rates, digital-friendly | Smaller bank, less known |
| Federal Bank | 6.30% p.a. | 5 years | Competitive rates, good for NRIs | Smaller footprint |
| Canara Bank | 6.00% p.a. | 5 years | Public sector bank, safety | Lower interest rates |
Comparison Table of Top 10 Tax-Saving FDs
| Bank/Institution | Interest Rate | Lock-in | Pros | Cons |
|---|---|---|---|---|
| SBI | 6.10% | 5 years | Trusted, wide network, loan against FD | Moderate interest |
| HDFC Bank | 6.25% | 5 years | Good service, flexible payouts | Higher minimum deposit |
| ICICI Bank | 6.25% | 5 years | Strong online platform | Interest taxable |
| Axis Bank | 6.15% | 5 years | Competitive rates | Bank charges |
| PNB | 6.00% | 5 years | Safe, PSU bank | Lower interest |
| Bank of Baroda | 6.10% | 5 years | Reliable | Variable customer service |
| Kotak Mahindra | 6.25% | 5 years | High rates, fast | Limited branches |
| IDFC First | 6.40% | 5 years | Highest rate, digital | Smaller bank |
| Federal Bank | 6.30% | 5 years | Competitive, good for NRIs | Smaller presence |
| Canara Bank | 6.00% | 5 years | Safe | Lowest interest rate |
Frequently Asked Questions (FAQs) about Tax-Saving Fixed Deposits
Q1. What is the minimum investment amount?
Most banks allow a minimum deposit of ₹1,000 to ₹5,000.
Q2. Can I withdraw before 5 years?
No, premature withdrawal is not allowed in tax-saving FDs due to lock-in.
Q3. Is the interest earned tax-free?
No, interest earned is taxable as per your income tax slab.
Q4. Can I claim deduction under Section 80C on interest too?
No, only the principal amount invested qualifies for deduction.
Q5. Can I invest in multiple tax-saving FDs in a year?
Yes, but total deduction under Section 80C is limited to ₹1.5 lakh.
Q6. Are these FDs safer than other investments?
Generally yes, since they are bank deposits backed by regulatory bodies.
Q7. Is loan against FD allowed?
Many banks offer loan/overdraft facility against FDs after some time.
Q8. Can NRIs invest in tax-saving FDs?
Some banks allow NRIs to invest, but rules vary.
Q9. How to open a Tax-Saving FD?
You can open through bank branches, online portals, or mobile banking apps.
Q10. What happens if I close the FD after 5 years?
You receive principal + interest, and you can claim deduction on the invested amount.