Saving taxes is a priority for many individuals, and one popular investment option that offers tax benefits is the tax-saving fixed deposit (FD). Tax-saving FDs not only provide tax deductions under Section 80C of the Income Tax Act but also offer fixed returns over a specific tenure. However, the interest rates offered by different banks may vary. In this article, we will compare the tax-saving FD interest rates among the top banks in India to help you make an informed decision.
Tax-saving fixed deposits are special FD schemes offered by banks that allow individuals to invest and claim a deduction on the principal amount under Section 80C of the Income Tax Act. These FDs usually have a lock-in period of five years, during which the invested amount cannot be withdrawn.
What is a tax-saving fixed deposit (FD)?
A tax-saving fixed deposit is a financial instrument where individuals can invest their money for a fixed tenure and enjoy tax benefits. These FDs have a lock-in period of five years and offer higher interest rates compared to regular fixed deposits.
Benefits of tax-saving FDs
Tax-saving FDs offer several benefits to investors. Let’s explore some of the key advantages:
Tax deduction under Section 80C
One of the primary benefits of tax-saving FDs is the tax deduction available under Section 80C. Investors can claim a deduction of up to Rs. 1.5 lakh in a financial year on the amount invested in these FDs. This deduction helps in reducing the taxable income and consequently, the tax liability.
Guaranteed returns
Tax-saving FDs provide investors with the assurance of guaranteed returns. The interest rates offered by banks are fixed at the time of investment and remain constant throughout the tenure. This stability makes tax-saving FDs a preferred choice for risk-averse individuals.
Fixed tenure
Unlike regular fixed deposits, tax-saving FDs have a fixed tenure of five years. This tenure ensures that the invested amount remains locked in for a specific period, helping individuals plan their finances better. The fixed tenure also prevents premature withdrawals, which can be beneficial for disciplined savings.
Comparison of tax-saving FD interest rates among top banks
FD interest rates of Public Sector Banks
| Public Sector Banks | Interest Rates (p.a.) | |
| General Citizens | Senior Citizens | |
| Union Bank of India | 6.70% | 7.20% |
| Bank of Baroda | 6.50% | 7.15% – 7.50% |
| Indian Overseas Bank | 6.50% | 7.00% |
| Punjab National Bank | 6.50% | 7.00% |
| State Bank of India | 6.50% | 7.50% |
| Central Bank of India | 6.25% | 6.75% |
| Punjab & Sind Bank | 6.25% | 6.75% |
| UCO Bank | 6.20% | 6.70% |
| Bank of India | 6.00% | 6.75% |
| Bank of Maharashtra | 5.75% | 6.25% |
FD interest rates of Private Sector Banks
| Banks | Interest Rates (p.a.) | |
| General Citizens | Senior Citizens | |
| HDFC Bank | 7.00% | 7.50% |
| ICICI Bank | 7.00% | 7.50% |
| IDFC First Bank | 7.00% | 7.50% |
| Axis Bank | 7.00% | 7.75% |
| Federal Bank | 6.60% | 7.25% |
| Jammu & Kashmir Bank | 6.50% | 7.00% |
| Karnataka Bank | 6.50% | 6.90% |
| Tamilnad Mercantile Bank | 6.50% | 7.00% |
| IDBI Bank | 6.50% | 7.00% |
| Kotak Mahindra Bank | 6.20% | 6.70% |
Factors to consider when choosing a tax-saving FD
When selecting a tax-saving FD, it is essential to consider various factors apart from just the interest rates. Some important factors to keep in mind are:
Interest rates
While interest rates are a significant consideration, it’s crucial to compare them with other factors as well. Don’t solely base your decision on the highest interest rate offered, as other aspects like the lock-in period and the reputation of the bank are equally important.
Lock-in period
Tax-saving FDs come with a lock-in period of five years, during which you cannot withdraw the invested amount. Consider your financial goals and ensure that you can afford to keep the money locked in for this duration before making a decision.
Premature withdrawal options
Although premature withdrawals are generally not allowed in tax-saving FDs, some banks may offer this facility under specific circumstances. It is advisable to check the terms and conditions regarding premature withdrawals before investing.
Renewal options
Some banks offer automatic renewal of tax-saving FDs at maturity. This feature can be convenient if you wish to continue investing in tax-saving FDs without going through the renewal process manually.
The reputation of the bank
Consider the reputation and credibility of the bank before investing in a tax-saving FD. Look for banks that have a strong track record of customer service and financial stability.
Tax implications on tax-saving FDs
While tax-saving FDs provide tax benefits, there are certain tax implications to be aware of:
TDS (Tax Deducted at Source)
Banks deduct TDS on the interest earned from tax-saving FDs if the interest amount exceeds Rs. 10,000 in a financial year. However, you can submit Form 15G/15H if you are eligible to avoid a TDS deduction.
Taxation on interest earned
The interest earned from tax-saving FDs is taxable as per the individual’s income tax slab rate. It is important to include the interest income in your annual income tax return.
Conclusion
Tax-saving fixed deposits are a reliable investment option for individuals looking to save taxes and earn fixed returns. While considering the interest rates offered by different banks is essential, don’t overlook other factors like the lock-in period, premature withdrawal options, renewal options, and the reputation of the bank. By carefully evaluating these aspects, you can make an informed decision and optimize your tax savings effectively.