- A tax-saving fixed deposit (FD) account is a type of fixed deposit account that offers a tax deduction under Section 80C of the Income Tax Act, 1961.
- Any investor can claim a deduction of a maximum of Rs.1.5 lakh per annum by investing in a tax-saving fixed deposit account.
Conditions for Tax Saving FD
- A lock-in period of 5 years
- Interest earned is taxable
- The rate of interest ranges from 5.5% – 7.75%
Advantages of Tax-Saving Fixed Deposits
- FDs have a higher interest-earning potential than savings accounts.
- FDs allow only a one-time lump sum deposit.
- Interest earned on fixed deposits is subject to TDS.
- Minimum tenure for receiving tax benefits is five years. However, it can be extended for a longer tenure.
- FDs offer flexibility in the deposit amount based on the investor’s convenience.
- Investors can get income tax deductions up to Rs.1,50,000 per annum under Section 80C of the Income Tax Act, 1961.
- Premature withdrawal may not be available.
Example
| Investment Type | Returns | Lock-in Period | Tax on Returns |
| 5-Year Bank Fixed Deposit | 5% to 7% | 5 years | Yes |
| Public Provident Fund (PPF) | 7% to 8% | 15 years | No |
| National Savings Certificate (NSC) | 6% to 8% | 5 years | Yes |
| National Pension System (NPS) | 8% to 10% | Till Retirement | Partially Taxable |
| ELSS Funds | 12% to 15% | 3 years | Partially Taxable |
