It’s that time of the year again when you scramble for last minute tax saving investments. Those who systematically arranged their tax-saving investments throughout the year remain at ease, whilst last-minute planners are rushing to maximise deductions and select appropriate investment vehicles.
With the financial year concluding in a fortnight, individuals must compute tax savings, check investments and decide on a proper tax saving strategy. Amongst the tax-saving alternatives, a Tax-Saving Fixed Deposit (FD) is a popular option for conservative investors. It is worth noting that tax saving investment avenues need to be considered only if you are filing your income tax return under the old tax regime.
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What is a Tax Saving FD?
A Tax Saving FD represents a special term deposit that provides tax advantages under Section 80C of the Income Tax Act, 1961. It enables investors to claim a deduction up to Rs 1,50,000 from their taxable income within a fiscal year. These deposits maintain a fixed interest rate throughout their five-year duration, ensuring reliable and secure investment returns.
According to an ET report, the five-year mandatory lock-in duration prohibits early withdrawals from the fixed deposit. This ensures the investment grows throughout the specified period.
Tax Saving FDs: Interest Rates
| Bank Name | Interest Rate (%) |
| DCB Bank | 7.40% |
| Axis Bank | 7.00% |
| IndusInd Bank | 7.25% |
| Yes Bank | 7.25% |
| Federal Bank | 7.10% |
| HDFC Bank | 7.00% |
| Bank of Baroda | 6.80% |
| Canara Bank | 6.70% |
| SBI (State Bank of India) | 6.50% |
| RBL Bank | 7.10% |
| IDFC FIRST Bank | 6.75% |
| Kotak Mahindra Bank | 6.20% |
*Data as on March 18, 2025 quoted from ET
Tax Saving FDs: How Does Interest Taxation Work?
A tax benefit up to Rs 1,50,000 is available annually through Section 80C deductions under the old income tax regime. This provision enables individuals to decrease their taxable earnings, resulting in reduced tax obligations.
The tax advantage is limited to the initial investment amount, excluding any interest earnings. Interest income becomes part of the total taxable earnings and attracts tax based on the individual’s income tax bracket.
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Banks withhold Tax Deducted at Source (TDS) when interest earnings surpass Rs 40,000 yearly (Rs 50,000 for senior citizens).
During income tax return (ITR) filing, individuals can request refunds or adjust TDS amounts if their total tax liability falls below the deducted TDS.
Tax Saving FDs differ from standard fixed deposits as they do not support loan or overdraft facilities. These deposits lack automatic renewal options, requiring manual reinvestment post-maturity if desired.
