Both Tax-Saving Fixed Deposits (FDs) offered by banks and Post Office 5-Year Time Deposit are popular options for individuals looking for safe investment avenues while availing tax benefits under Section 80C of the Income Tax Act. However, they differ in terms of returns, liquidity, tax implications, and eligibility.
Post Office 5-Year Term Deposit (TD) Account
The Post Office 5-Year Term Deposit (TD) Account is a government-backed savings scheme offering a fixed interest rate and tax benefits. The interest rate on the 5 year Post Office Term Deposit is 7.5% for the first quarter of 2025 – January to March. The government revises post office small savings scheme interest rates every quarter. However, once you lock in your funds in the TD the interest rate remains unchanged for the entire tenure.
Also read: Last minute tax saving: Here’s a list of tax saving FDs with high interest rates, lock in before March 31, 2025
Post Office 5-Year Term Deposit is eligible for deduction under Section 80C of the Income Tax Act, 1961. Under this scheme, TDS will be deducted. Interest obtained through this plan is taxed. When filing your tax returns, you must include interest income under “Income from Other Sources” and pay the appropriate income tax rate.
The minimum investment to be made is Rs 1000/- and Rs 1.5 lakh is eligible for deduction under section 80C. Note that only 5 year term deposits in Post Office offer tax benefits, other tenures of 1, 2, and 3 years are not eligible for tax benefits.
Tax-saving FD for general citizens
Tax-saving FDs have a five-year mandatory lock-in period, which means that early withdrawals are not permitted.
TDS on interest
If the interest earned exceeds Rs 40,000 for general citizens in a financial year, 10% Tax Deducted at Source (TDS) is applicable. If PAN is not submitted, the bank will deduct 20% TDS. Investors can submit Form 15G/15H to avoid TDS deduction if their total income is below the taxable limit.Interest rates differ from bank to bank. For general residents, State Bank of India (SBI) gives an interest rate of 6.50% on tax-saving FD, HDFC Bank and ICICI Bank offer interest rates of 7%.
| 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% |
Senior Citizens tax saving FD
Senior citizens enjoy an additional interest rate benefit, typically 0.5% higher than regular rates, making tax-saving FDs an attractive option for retirees looking for safe investments with better returns.
TDS on Interest
If the interest earned exceeds Rs 50,000 for senior citizens in a financial year, Tax Deducted at Source (TDS) at 10% is applicable. If PAN is not submitted, the bank will deduct TDS at 20%. Investors can submit Form 15G/15H to avoid TDS deduction if their total income is below the taxable limit.
Here are banks offering 7.50% and above on tax saving FDs for senior citizens
| HDFC Bank FD | 7.50% |
| Axis Bank | 7.75% |
| Federal Bank – | 7.60% |
| ICICI bank – | 7.5 |
| Yes bank- | 8% |
| RBL Bank – | 7.60% |
| IndusInd bank | 7.75% |
| DCB Bank | 7.90% |
| Bandhan bank | 7.50% |
