Tax Saving Fixed Deposits

This article talks about Tax Saving Fixed Deposits, their features, and application procedure.

· 4 min read
Tax Saving Fixed Deposits

In this Article:1. Features of Tax Saving FD2. How to Apply for Tax Saving FD3. Documents Required for Tax Saving FD4. Conclusion

When it comes to saving and investing money, there are countless good ways to do it. But when it comes to saving tax money, people find it difficult to locate superior methods. Although The Income Tax Act, 1961, provides many provisions for saving taxes, Section 80C is among the most favored provision by the taxpayers. Under Section 80C, taxpayers have many investment options to save tax up to Rs. 1.5 lakhs. One such risk-free method is Tax Saving Fixed Deposit (FD). Most of the people in India prefer to have at least one fixed deposit account, to minimize risk and earn superior and stable returns. Tax saving Fixed Deposit is just like any other deposit scheme, in which we can get tax deduction under section 80C of the IT Act,1961. Any person can deposit money under this scheme and claim a deduction. Tax saving FDs is the best fit for those people who need a safe and easy bet for saving tax. It is considered one of the easiest ways to safeguard your money from being taxed.

Features of Tax Saving FD

  • Eligibility: Only individuals and HUFs are eligible to invest under this deposit scheme as only they are eligible to claim a deduction for this scheme under Section 80C of The IT Act,1961. Minor can also invest jointly with an adult under this deposit scheme.
  • Deposit limits: The minimum deposit permitted under tax saving a fixed deposit is Rs. 100, and multiples of Rs. 100 thereof. The maximum amount that can be deposited per year is Rs. 1.5 lakhs, which is also the upper limit of deduction under Section 80C.
  • Deposit Tenure: The minimum deposit tenure is 5 years and can be extended up to 10 years.
  • Place of Investment: Investment in tax-saving FDs can be done through any private or public sector bank. Here bank excludes co-operative and rural banks.
  • Loan Facility: A loan against these deposits is not allowed.
  • Premature Withdrawal: The amount deposited under this scheme is not allowed to be withdrawn before maturity.
  • Post Office Time Deposits: Deposits made in post office time deposits for 5 years are also included within the purview of Section 80C for deduction purposes. These Post Office Time Deposits are transferrable from one post office to another.
  • Single or Joint: These deposits can be held either in a single or joint mode of holding. But in the case of joint holding, tax benefits are only available to the first holder.
  • Interest and TDS: The interest rates on tax-saving FDs range between 5.5%-7.75% (subject to market conditions and banks). Though the amount deposited in this scheme is allowed as a deduction, the interest earned on these deposits is subject to tax as per the investor’s tax bracket. As a result, interest earned is also subject to Tax Deducted at Source (TDS). The interest is payable on a monthly or quarterly basis and can also be reinvested. The investor can avoid TDS by submitting Form 15G or Form 15H for senior citizens to the bank. TDS, for individuals, is applicable if the total interest earned during the financial year exceeds Rs. 40,000.
  • Section 80TTB: Senior citizens can claim deduction on interest earned from these deposits up to Rs. 50,000 during the given financial year.
  • Nomination: Tax-saving FDs provide a nomination facility except when the deposit is applied for and held by or on behalf of a minor.
  • Senior Citizen: Banks offer a bit higher interest rates on tax-saving FDs to senior citizens. These differential interest rates are not offered by post office time deposits.
  • Old vs New Tax Regime: Tax saving a fixed deposit is allowed as deduction under Section 80C under the old tax regime but is not available for someone opting for the new tax regime.

How to Apply for Tax Saving FD

Applying for tax saving FD is a simple process. You can apply for this deposit either through an online process or through an offline process.

Online Process

  • Log in to your bank account and select the deposit option.
  • After selecting the deposit option, click on create recurring fixed deposits.
  • Fill in the required account and nominee details.
  • On confirmation, the selected amount will be credited to fixed deposits and deducted from your savings account. You would receive a web receipt of the tax saver fixed deposit booked instantly.

The process may vary a little from bank to bank.

Offline Process

Tax Saving Fixed Deposit can also be opened by visiting the branch of a bank. You will need to fill in the required forms and submit them with the important documents required.

Documents Required

Certain documents are required to be submitted to the bank to open a tax-saving FD. Document requirements may vary from bank to bank, but generally following documents are needed to be submitted:

  • Identity Proof such as Passport, PAN card, driving license, voter ID card, or any other Government ID card.
  • Address Proof such as Passport, telephone bill, electricity bill, bank statement, or certificate/ID card issued by Post Office.
  • Passport size Photograph


Tax Saving FDs works on a simple principle, you need to deposit a lump sum amount for 5-10 years and your investment gets a locked-in interest (irrespective of any interest rate fluctuations in the future). Fixed deposits are generally not exposed to market volatility and are considered relatively safe. Due to these reasons tax saving, FD is a good option for those looking for less risky investments for saving taxes. Some other popular options to save tax under Section 80C include Equity Linked Savings Scheme (ELSS) and Public Provident Fund (PPF).

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