As we are already in the middle of March, taxpayers are busy assessing their financial standing and managing their tax liabilities. While those who planned their tax-saving investments throughout the year have nothing to worry about, last-minute planners find themselves scrambling to optimize deductions and choose the best investment options. With only two weeks left for the end of this financial year, the challenge is to calculate tax savings, explore financial instruments, and finalize a suitable plan. Among the various tax-saving options available, a Tax-Saving Fixed Deposit (FD) stands out as a viable choice for last-minute tax saving. Tax saving is only available in the old tax regime and not applicable for taxpayers who opted for the new tax regime.
What is a Tax Saving FD?
A Tax Saving FD is a special term deposit offering tax benefits under Section 80C of the Income Tax Act, 1961. In a given fiscal year, this gives investors the opportunity to seek a deduction of up to Rs. 1,50,000 from their taxable income. These deposits have a five-year term, during which the rate of interest is constant. This guarantees steady and safe returns on the investment.
Also read: Should you stop investing in PPF, SSY, NPS when switching to the new tax regime?
Lock-in period
Premature withdrawals from the fixed deposit are prohibited for the five-year mandatory lock-in term. This guarantees that the investment will increase over the allotted time.Interest taxation
Investors can claim a deduction of up to Rs 1,50,000 per financial year under Section 80C. This deduction helps reduce the taxable income, thereby lowering the overall tax liability.However, the deduction applies only to the principal amount and not to the interest earned. The interest income is added to the investor’s total taxable income and is taxed according to the applicable income tax slab rate. Banks deduct Tax Deducted at Source (TDS) on the interest earned if it exceeds Rs 40,000 in a financial year (Rs 50,000 for senior citizens).Also read: NSC vs bank FDs: Which is a better tax saving option?
Investors can claim a refund or adjust the TDS amount while filing their income tax returns (ITR) if their total tax liability is lower than the TDS deducted.
Unlike regular FDs, investors cannot avail loans or overdraft facilities against a Tax Saving FD. These FDs do not offer an auto-renewal facility. Upon maturity, investors will need to reinvest manually if they wish to.
One of the most popular choices is the Tax-Saving Fixed Deposit (FD), which offers tax benefits under Section 80C of the Income Tax Act while also providing consistent returns. These FDs come with a lock-in period of 5 years and can be ideal for conservative investors who prioritize capital protection along with moderate returns.
Tax-Saving FD 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% |
Source: From bank website as on March 18, 2025
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