Tax-saving fixed deposits or FDs are a special category of deposits that offer income tax benefits. Under Section 80C, an investor can claim deduction up to ₹ 1.5 lakh by investing in tax-saving fixed deposits. Recently, many banks, including SBI, HDFC Bank and ICICI Bank, have hiked their fixed deposit rates, including those on tax-saving FDs. These tax-saving FDs have a lock-in period of five years. This means that partial/premature withdrawal from tax-saving FDs is not permitted before the lock-in period of five years.
Typically, banks offer higher interest rate to senior citizens on fixed deposits and this also applies to tax-saving FDs. In case of joint accounts, the senior citizen benefit can be availed only if the first account holder qualifies for this benefit.
SBI tax-saving FDs: Interest rate and other details
SBI, India’s largest bank, offers FDs up to 10 years and the tax-saving ones have a lock-in of five years. An investor can open SBI tax-saving FD with a minimum deposit of ₹ 1,000. The interest rates vary from time to time. Currently, SBI is offering 6.85% interest rate on tax-saving FDs of maturity between 5 years and 10 years. Senior citizens get 50 bps higher interest rate of 7.35%.
HDFC Bank tax-saving FDs: Interest rate and other details
The minimum investment amount can vary from bank to bank. HDFC Bank, for example, allows opening of tax-saving deposits with a minimum amount of ₹ 100, according to its website. HDFC Bank offers fixed deposits of maturity of up to 10 years. The bank is offering interest rate of 6.5% on tax-saving FDs. Senior citizens get 50 basis point higher interest rate of 7%.
ICICI Bank tax-saving FDs: Interest rate and other details
The minimum amount required for opening an ICICI Bank tax-saver FD is ₹ 10,000. ICICI Bank offers interest rate of 7.25% on five-year tax-saver FDs. Senior citizens get 50 basis points higher interest rate.
Other things to know about tax-saving FDs
1) The tax-saver fixed deposit schemes don’t offer premature withdrawal (lock-in of 5 years), loan against fixed deposit and auto-renewal facilities.
2) In the case of joint deposits, the tax benefit under Section 80C will be available only to the first holder of the tax-saver deposit.
3) TDS of 10% is deducted when the interest payable or reinvested in fixed deposits per customer across all branches exceeds ₹ 10,000 in a financial year. For senior citizens, the threshold applicable is ₹ 50,000. A deposit holder whose estimated total income or the aggregate total income does not exceed the basic exemption limit can submit Form 15G/H to avoid TDS.
4) The amount invested in tax-saver FDs is eligible for tax deduction but interest income is taxable under “income from other sources".
5) An investor can choose different interest payout options such as monthly and quarterly or the reinvestment option, where interest is paid out at the time of maturity of the tax-saving deposit.