Tax Saver Fixed Deposit

Tax-Saver Fixed Deposits yield higher interest rates than Savings Accounts and have a fixed tenure of five years. Investors can claim deductions up to ₹1,50,000 annually under Section 80C of the Income Tax Act, 1961, with a tax-saving FD. This effectively reduces an individual’s gross total income.

For FY24, interest earnings over ₹40,000 attract tax liabilities, adjusted from ₹10,000 in the previous year. Such interest falls under the 'income from other sources' category for tax considerations. This is Tax Deducted at Source (TDS). Tax-saving FDs serve as a prudent method for enhancing savings while offering tax benefits, aligning with financial growth objectives.

You cannot completely avoid TDS on tax-saving fixed deposits, but there are a few ways to minimise the tax outgo under various provisions of the Income Tax Act. These include:

• Tax-saving with Form 15G



Eligibility to submit Form 15G for tax-saving Fixed Deposits is when the annual income is below ₹2,50,000. This form is a declaration that one's income sits beneath the taxable threshold, cancelling TDS on the interest generated from such FDs.

• Tax-saving with Form 15H



Form 15H serves as a tool for senior citizens — 60 years or more, whose annual income does not cross ₹2,50,000 — to claim an exemption on the interest from Fixed Deposits. This form is a testament to their tax-exempt status, preventing TDS on their FD interest earnings.

• Tax-saving with a joint applicant



In joint Fixed Deposit accounts, TDS can be sidestepped if the joint holder is specified as the primary account holder and submits a valid Form 15G or 15H, as applicable. The interest income is then not subjected to TDS for the secondary holder, thus optimising tax benefits.

• Tax deductions for re-investment FDs


• Tax Deducted at Source (TDS) comes into effect when the aggregate interest earned across all branches on Recurring Deposits (RD) and Fixed Deposits (FD) for an individual exceeds ₹40,000 within a financial year – the threshold is higher at ₹50,000 for senior citizens.
• A TDS Certificate outlining the details of the tax deducted will be dispatched to the depositor each quarter, offering transparency on the TDS applied throughout the fiscal year.
• Documents required for tax-saving FD



Opening a tax-saving Fixed Deposit requires furnishing valid identification and address verification. Accepted documents include Aadhaar, PAN, Voter ID, Driving Licence, Passport or any OVD document for identity verification.

• Guaranteed returns: Tax saver FDs offer fixed and predictable returns, unaffected by market fluctuations.
• Risk-free: Tax-free FD are insulated from market risks, ensuring capital safety.
• Senior citizen advantage: A preferential interest rate that exceeds the standard rate by 0.25% to 0.5% is available for senior citizens.
• Tax deduction: Investments qualify for a deduction under section 80(C) of the Income Tax Act, up to ₹1,50,000 annually.
• Minimum investment: Initiating a tax-free Fixed Deposit is possible with an investment as small as ₹100.
• Maximum investment: The upper limit for investment in tax-saving FDs is ₹1,50,000.
• Eligibility: Only Indian citizens and Hindu Undivided Families (HUFs) can open tax-saving FDs.

In comparison to other tax-saving instruments, the rate of interest is mediocre. However, the upside is that the tax-saver fixed deposit rates and returns are guaranteed and risk-free. This is because the returns do not depend on the performance of the capital or stock market. Here are some other tax-saving investments with their rate of interest:

To know your tax-saver FD rates, you can use a fixed deposit interest rate calculator.