Tax Saver Fixed Deposit for Section 80C Deductions

A Tax Saving Fixed Deposit is a financial instrument designed to help you save on income tax while earning fixed returns on your investment. This type of fixed deposit (FD) comes with a lock-in period of 5 years and offers tax benefits under Section 80C of the Income Tax Act 1961. A tax saving FD is an ideal investment for risk-averse investors who seek a combination of stable returns and tax advantages. This article will help you to understand these FD schemes in detail.

Returns as high
as 7.1%^##

Includes life cover

Completely Tax free^{^}

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7.7 Crore

Registered Consumer

Insurance Partners

4.2 Crore

Policies Sold

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7.7 Crore

Registered Consumer

Insurance Partners

4.2 Crore

Policies Sold

Disclaimer: *The Guaranteed Returns are dependent on the policy term and premium term availed along with the other variable factors. 7.1% rate of return is for an 18 years old, healthy male for a policy term of 20 years and premium term of 10 years with Rs.10,000 monthly installment premium. All plans listed here are of insurance companies’ funds.

What is a Tax Saving Fixed Deposit?

A Tax Saving Fixed Deposit, also known as Tax Saving FD, is a type of fixed deposit that allows you to claim a tax deduction of up to Rs. 1.5 lakhs per annum under Section 80C of the Income Tax Act, 1961. The tenure of these tax-saving financial investments is 5 years, and the interest earned is taxable. The tax-saving FD interest rates generally range between 6% - 8.25% p.a. for regular citizens and between 6.50% - 8.75% p.a. for senior citizens.

Latest RBI Update:

The RBI has introduced a new rule for unclaimed matured fixed deposit accounts.
Under this rule, the funds in such accounts will earn interest as per the lower of the following interest rates:
- Rates of savings accounts
- The contracted interest rate of the matured fixed deposit

Comparison Between

Fixed Deposits, Guaranteed Return Plans & Debt Mutual Fund

Guaranteed Return Plans, Fixed Deposits &
Debt Mutual Fund

Guaranteed Return Plans

Returns Before Tax

7.5% ^(TAX-FREE)

Returns After Tax

7.5%

Guaranteed Returns

Yes

Life Cover

Yes

Tax on Profit

Tax Free*

Risk

No Risk

Still Better than FD’s and Debt Mutual Fund

Fixed Deposits

Returns Before Tax

7% ^(TAXABLE)

Returns After Tax

4.8%

Guaranteed Returns

Yes

Life Cover

Tax on Profit

Taxable

Risk

Low Risk

Debt Mutual Fund

Returns Before Tax

8% ^(TAXABLE)

Returns After Tax

5.5%

Guaranteed Returns

Life Cover

Tax on Profit

Taxable

Risk

High Risk

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*For annual premium upto ₹5 Lacs

Features of a Tax Saving FD

The key features of a tax-saving fixed deposit are listed in the table below:

Particular	Details
Investment Tenure	5 years
Lock-in Period	5 years
Purpose	Save on income tax
Maximum Investment	Up to Rs. 1.5 lakhs
Interest Rates	Fixed, determined at the time of investment
Premature Withdrawal	Not allowed
Tax Benefits	Tax deductions on investment amount under Section 80C
Tax on Interest Earned	Taxable
Financial Institution	Offered by banks and financial institutions
Risk	Considered a low-risk investment option

Benefits of Tax Saving FD

A tax saving FD offers you various benefits, some of which are mentioned in the list below:

Guaranteed Returns: Tax-saving FDs offer assured returns on your investment.
Tax Benefits: You can claim deductions under Section 80C of the Income Tax Act for your investments in tax-saving fixed deposits.
Fixed Lock-in Period: Your funds in a tax-saving fixed deposit are locked for a specific period. This helps to promote disciplined savings.
Capital Protection: The principal amount invested in the tax saving FD is secure, which ensures capital protection.
No Market Fluctuations: Unlike market-linked investments, the tax-saving Fixed Deposit returns remain unaffected by market volatility.
Easy to Understand: This simple investment option is suitable for those seeking stability and tax savings.
Cumulative and Non-Cumulative Options: You can choose between cumulative interest or regular payouts.
Accessibility: Tax saving FDs are offered by various banks and financial institutions, making them easily accessible.
Ideal for Risk-Averse Investors: The tax-saving FDs are suited for individuals preferring low-risk investments with tax advantages.

FD interest rates India have fallen consistently over the last 12 years.

Invest in Plans that offer Guaranteed Returns for over 25 Years

Tax Saving FD vs. ULIP vs. Mutual Funds vs. ELSS vs. NPS

Here is a comparison table for Tax-saving Fixed Deposit (FD) with other tax saving investments, like Unit Linked Insurance Plan (ULIP), Mutual Funds, Equity Linked Savings Scheme (ELSS), and National Pension Scheme (NPS).

Criteria	Tax-Saving FD	ULIP	Mutual Funds	ELSS	NPS
Lock-in Period	5 years	5 years	3 years	3 years	Till retirement or 60 years (whichever is earlier)
Risk Level	Low	Variable (depends on fund choice)	Variable (depends on fund choice)	Moderate to High	Moderate
Return Potential	Generally lower compared to market-linked options	Variable (depends on fund performance)	Variable (depends on fund performance)	Generally higher due to equity exposure	Variable (depends on fund choice)
Taxation on Returns	Taxable	Tax-free under Section 10(10D)	Taxable	Taxable	Taxable
Tax Benefit on Investment	Qualifies for deduction under Section 80C	Qualifies for deduction under Section 80C and 10(10D0	Qualifies for deduction under Section 80C	Qualifies for deduction under Section 80C	Qualifies for deduction under Section 80CCD(1)
Risk Appetite	Low	Moderate to High	Moderate to High	High	Moderate
Liquidity	Generally low due to the lock-in period	Partial withdrawals are allowed after the lock-in period	Redemption is possible after the lock-in period	Redemption is possible after the lock-in period	Partial withdrawals are allowed under certain conditions
Flexibility	Limited flexibility in terms of withdrawal and premature closure	Flexibility in choosing investment funds	Flexibility in choosing funds	Flexibility in choosing funds	Limited flexibility, subject to certain conditions
Payouts	Fixed interest rate	Variable, based on fund performance	Variable, based on fund performance	Variable, based on market conditions	Annuity payments after retirement
Purpose	Conservative investors looking for fixed returns	Investors seeking a mix of insurance and investment	Investors looking for market exposure with potential tax savings	Investors seeking tax-saving with higher equity exposure	Retirement planning with tax benefits

Conclusion

Tax-Saving Fixed Deposit is a beneficial investment option for you to optimize your tax liabilities while securing your financial future. With the dual advantage of tax deductions under Section 80C and the stability of fixed returns, this best investment plan provides a reliable option for conservative investors looking to balance tax efficiency with capital preservation. Choosing a Tax-Saving Fixed Deposit can be a prudent step toward achieving both financial security and tax optimization.

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FAQs

Which tax-saving FD is best?

The best tax-saving FD for you will depend on your individual needs and preferences.

Here are some of the best tax-saving FDs in India as of November 2023:

Bank	Interest rate for regular citizens	Interest rate for senior citizens
HDFC Bank FD Rates	7.00% p.a.	7.50% p.a.
Canara Bank FD Rates	7.00% p.a.	7.50% p.a.
Axis Bank FD Interest Rates	7.00% p.a.	7.75% p.a.
BoB FD Interest Rates	6.50% p.a.	7.15% p.a.
DCB Bank FD Rates	7.60% p.a.	8.10% p.a.

Is 5-year FD tax-free?

No, a 5-year FD is not tax-free. The interest earned on a 5-year FD is taxable under the Income Tax Act 1961. However, you can claim a deduction of up to Rs. 1.5 lakhs per annum on the investment amount under Section 80C of the Income Tax Act.
Which investment is 100% tax-free?
There are a few investment options in India that offer 100% tax-free returns. These include:
- Unit Linked Insurance Plan (ULIP)
- Public Provident Fund (PPF)
- Sukanya Samriddhi Yojana (SSY)
- National Pension System (NPS)
Can we break tax saving fixed deposit?

No, you cannot break a tax-saving fixed deposit (FD) before the lock-in period of 5 years. Premature withdrawal of a tax-saving FD is not allowed.

†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in

* Applicable for Titanium variant of Max Life Smart Fixed-return Digital (Premium payment of 5 years, Policy term of 10 years) and a healthy male of 18 years old paying Rs. 30,000/- monthly (exclusive of all applicable taxes)

** Fixed deposit rate applicable for 5 year's 1 day to 10 years for investment amount less< 2 Crore ( Not for senior citizens).

*** PPF interest rate applicable for 15 years for investment amount upto 1.5 Lac

+ Trad plans with a premium above 5 lakhs would be taxed as per applicable tax slabs post 31st march 2023

#Discount offered by insurance company

## The Guaranteed Returns are dependent on the policy term and premium term availed along with the other variable factors. 7.1% rate of return is for an 18 years old, healthy male for a policy term of 20 years and premium term of 10 years with Rs.10,000 monthly installment premium. All plans listed here are of insurance companies’ funds.

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