Investing in tax saving financial instruments is a must for any earning individual whose income falls in the taxable income slab. There is a wide range of tax-saving options available in the market but for the risk-averse investors, five year tax-saving fixed deposits rank comparatively higher. There are guaranteed returns at attractive FD rates thus making tax saver FD worth considering for all.
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As per section 80C of the Income Tax Act, you can claim deductions of up to Rs. 1.5 lakh per financial year when filing ITR or Income Tax Return. An investment made in 5-year Tax Saver FD qualifies for this deduction.
When talking about the best tax-saving schemes, there are conservative options like Public Provident Fund (PPF) and National Savings Certificate (NSC) and radical ones like Equity Linked Savings Scheme. While the former choices are safer, they do not give much liquidity to the investor. As far as the latter option is concerned (ELSS), it gives liquidity with a shorter lock-in period of only 3 years but there is significant risk involved.
In such a scenario, a tax-saving fixed deposit scheme that comes with a lock-in period of 5 years can help build a balanced portfolio that saves one from the tax axe to an extent while helping them grow their money at significant rates.
Also Read: Income Tax Exemptions on Fixed Deposits
Best Tax Saving FD Rates
Following are the best FD rates for tax saving time deposits (as per the interest rates offered to investors) available in India for regular individuals and senior citizens:
| Name of the Bank | Rate of Interest (% p.a.) | Maturity Amount* (if Rs. 10,000 invested) | Maturity Amount* (if Rs. 1.5 lakh invested) |
| DCB Bank | 7.60% | Rs 14,113 | Rs 2,11,697 |
| IDFC First Bank | 7.00% | Rs 13,304 | Rs 1,99,556 |
| RBL Bank | 6.55% | Rs 13,804 | Rs 2,07,063 |
| Yes Bank | 6.75% | Rs 13,975 | Rs 2,09,625 |
| Lakshmi Vilas Bank | 6.50% | Rs 13,469 | Rs 1,97,110 |
*Quarterly Compounding
Interest rates updated on 27th December 2022.
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| Name of the Bank | Rate of Interest (% p.a.) | Maturity Amount* (if Rs. 10,000 invested) | Maturity Amount* (if Rs. 1.5 lakh invested) |
| DCB Bank | 7.45% | Rs. 14,464 | Rs. 2,16,959 |
| IDFC First Bank | 6.25% | Rs. 13,636 | Rs. 2,04,530 |
| RBL Bank | 7.00% | Rs. 14,149 | Rs. 2,12,217 |
| Yes Bank | 7.50% | Rs. 14,449 | Rs. 2,12,217 |
| Lakshmi Vilas Bank | 6.00% | Rs. 13,469 | Rs. 2,02,028 |
*Quarterly Compounding
Interest rates updated on 27th December 2020.
Note: The aforementioned rates are subject to change anytime. Values (maturity amount) is only indicative and for the sole purpose of helping investors in better planning. Actual figures may vary.
To know about the other best tax saving FD rates in 2020 by banks other than the ones mentioned here, click on the link below for an updated list:
The updated list of best tax-saving FD interest rates for the year of 2022.
Looking at these tables, it is quite clear that investing in a tax-saving fixed deposit scheme is definitely a good option which gives decent returns too.
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The following are the features and benefits of FD schemes by some of the major banks in India:
1. DCB Bank
Minimum Deposit: Rs. 10,000
Interest Payout Option: Quarterly compounding or Quarterly payout of interest
Currently, DCB Bank FD rates are 6.95% for regular citizens and 7.45% for senior citizens.
2. IDFC First Bank
Minimum Deposit Amount: Rs. 1,000
Both cumulative as well as non-cumulative options available (For monthly interest payout option, interest is calculated on a quarterly basis and paid per month at discounted rates over the standard IDFC First FD rates).
Currently, IDFC First Bank offers 5.75% for regular individuals and 6.25% for senior citizens.
3. RBL Bank
Minimum Deposit Amount: Rs. 100
Interest Payout Option: Compounding of interest as well as interest payout options available at different frequencies
Currently, RBL Bank FD rates are 6.50% for regular individuals and 7.00% for senior citizens.
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4. Lakshmi Vilas Bank
Minimum Deposit Amount: Rs. 100
Interest Payout Option: Cumulative (interest payout on maturity) and non-cumulative (monthly, quarterly, annually or semi-annually interest payout) options available
Currently, Lakshmi Vilas Bank FD rates are 5.50% and 6.00% for regular individuals and senior citizens respectively.
5. Yes Bank
Minimum Deposit Amount: Rs. 1,000
Currently, customers can earn interest at 6.75% and 7.50% (for senior citizens).
As per the latest amendments in the Income Tax Act, 1961, if the interest earned on tax-saving fixed deposit exceeds Rs. 40,000, then the bank (or the provider) will deduct tax at source (TDS) @ 10% before disbursing due interest. This limit is set at Rs. 50,000 for senior citizens whose age is 60 years or more.
Also, if you do not submit PAN with your FD provider, TDS will be charged at 20% instead of the regular 10%. TDS for NRIs is set at 30% (Non-Resident Indians who have invested in NRO and/or RFC deposits).
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Conclusion
If you are looking for a less invasive tax saving option but also don’t want to sacrifice on interest, then 5-year tax saving FD schemes are your best bet. In FD, the investor can choose the option of receiving interest at regular intervals (might vary from one bank to another). This puts FD one step ahead of other tax saving investment schemes.
As far as ELSS is concerned, you get a shorter lock-in period of only 3 years but there is significant risk involved as it is market-linked which makes it a blurred out choice for risk-averse investors.
Likewise, PPF (Public Provident Fund) gives maximum security to the investors as their money is completely safe and decent interest rates are also offered (currently 7.10%). But PPF falls behind in terms of liquidity as your money gets locked for a long duration of 15 years which may not be favourable if there is an emergency and you need quick cash.
Read more about FD vs PPF here
For National Savings Certificate or NSC, the same benefit as that of tax-saving a fixed deposit is provided with the same lock-in period of 5 years, but FD fairs well in terms of higher interest here. Small finance banks give up to 8.00% fixed deposit interest rates on 5-year tax saving schemes.
Thus, if you are thinking of investing in a financial instrument that will help save tax while growing your money, tax-saving fixed deposits should not be missed out.
