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7 Tax-Saving Fixed Deposits With High Interest Rate

Roshni Agarwal

Despite interest rates trending lower, bank fixed deposits are still being sought by the elderly as safe investment avenues with assured return. Also, if one is planning for his or her taxes one can consider locking funds in tax saving fixed deposits.

Few Pointers To Know About Tax-Saving Fixed Deposits

1. Only individuals and HUFs are allowed to invest in tax-saving fixed deposits. In case of a minor, the account can be held jointly with a major individual.

2. A maximum of Rs. 1.5 lakh in a financial year can be invested in these FDs, which is the upper limit for tax saving investment under Sec 80C of the Income Tax Act. Minimum amount varies from bank to bank.

3. These FDs come with a lock-in of 5 years with no premature withdrawal or advance facility against the FD scheme.

4. Both private and public banks in India offer such 5-year tax-saving fixed deposits. Cooperative and rural banks however do not have such an offering.

5. The instrument is akin to post office 5-year time deposit scheme that also allows deduction under Section 80C.

6. In case the FD is held jointly, the taxation benefit shall be available only to the first account holder.

7. Interest earned on these FDs is taxed as per the investor's slab rate and hence attracts TDS. And to avoid such TDS implication, investor needs to submit form 15G or 15H (in case of senior citizens), as may be the case.

8. Similar to ordinary bank FDs, tax saving fixed deposit also provide interest rate differential advantage to senior citizens.

Tax Saving Fixed Deposits With The Highest Interest Rates

Bank Interest Rate compounded quarterly What Rs. 1.5 Lakh Will Grow To In 5 Years
DCB Bank 7.35% 215897
IDFC First Bank 7.25% 214839
RBL Bank 7.15% 213786
AU Small Finance Bank 7% 212217
Yes Bank 7% 212217
Deutsche Bank 7% 212217
IndusInd Bank 6.75% 209625

Senior citizens would get an additional interest rate of 0.5% over and above the interest rate offered to non-senior citizen investor category.

Advantages of tax-saving fixed deposits

Tax saving fixed deposit as the name suggests is a tax saving investment avenue where one can invest to save tax under section 80C of the Income Tax Act.

1. Safe in comparison to equity based tax saving options such as ELSS or equity linked savings scheme.

2. Offer assured return as agreed as per the terms and interest rate remains fixed for the FD tenure.

3. Also, among debt investment instruments that offer 80C tax deduction benefit, tax saving FDs come with the shortest lock-in of 5 years, and also provide periodic interest pay out unlike 5-year NSC that offers cumulative interest. Thus, 5 year tax saving fixed deposits are more liquid and better option to bet on.

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