Top 5 Tax Saving Fixed Deposits in 2023

A Tax-Saving is a deposit scheme in which one can avail of tax benefits under section 80C of the Income Tax Act 1961. Any investor who invests in tax saver FD can get a deduction of up to INR 1.5 lakhs. Tax-saving FDs have a lock-in period of 5 years, just like other fixed deposit returns on tax-saving fixed deposits are also fixed for the term.

They don’t change, no matter what. However, you cannot make any partial withdrawals or premature withdrawals from your tax saving deposits. Tax-saving FD interest rates are pretty good, they range from 5.5% to 7.75%. However, interest rates from tax saving FD are taxable. To calculate the returns you will get on the deposits you can use the FD calculator, which is available online and free to use.

Key Features of Tax-Saving Fixed Deposits

Easy way to make savings u/s 80C of Income Tax Act.
It provides both tax savings and higher returns.
The minimum deposit amount is INR 1000.
The maximum deposit amount is INR 150,000.
The lock-in period is 5 to 10 years.
A nomination facility is also available.

Benefits of Tax Saving Fixed Deposit

Mentioned below are the benefits of tax-saving fixed deposits:

FDs have a higher interest-earning potential than savings accounts.
FDs allow only a one-time lump sum deposit.
Interest earned on fixed deposits is subject to TDS.
The minimum tenure for receiving tax benefits is five years. However, it can be extended for a longer tenure.
FDs offer flexibility in the deposit amount based on the investor’s convenience.
Investors can get income tax deductions up to Rs.1,50,000 per annum under Section 80C of the Income Tax Act, 1961.
Premature withdrawal may not be available.

TDS on a Fixed Deposit Interest Earned

The interest income on a tax-saving FD is subject to tax and hence TDS is also applicable. However, the deduction of TDS is subject to the interest income earned by a taxpayer in the financial year.

TDS Rate	Interest Earned For Normal Citizen	Interest Earned For Senior Citizen
0%	Less Than INR 40,000	Less Than INR 50,000
10%	More Than INR 40,000	More Than INR 50,000
20%	More Than INR 40,000 (No Pan Card)	More Than INR 40,000 (No Pan Card)

Documents Required

Mentioned below is the list of documents required to open a tax-saving fixed deposit in banks:

1. Identity Proof

Passport
PAN card
Voter ID card
Driving licence
Government ID card
Senior citizen ID card

2. Address Proof

Passport
Telephone bill
Electricity bill
Bank Statement with Cheque
Certificate/ ID card issued by Post office

Now let us have a look into the Top 5 Tax Saving FDs:

1. DCB Bank:

DCB Bank offers interest rates between 3.75% to 7.85% on deposits below INR 2 crore for tenure ranging between 7 days to 10 years. For tax-saving fixed deposits, the bank offers an interest rate of 7.60%.

2. Axis Bank:

Axis Bank offers interest rates between 3.50% to 7.26% on deposits below INR 2 crore for tenure ranging between 7 days to 10 years. For tax-saving fixed deposits, the bank offers an interest rate of 7%.

3. Bandhan Bank:

Bandhan Bank FD Rates range between 3% to 6.50% on deposits below INR 10 crore for tenure ranging between 7 days to 10 years. For tax-saving fixed deposits, the bank offers an interest rate of 7%.

4. HDFC Bank:

HDFC Bank offers interest rates between 3% to 7% on deposits below INR 2 crore for tenure ranging between 7 days to 10 years. For tax-saving fixed deposits, the bank offers an interest rate of 7%.

5. ICICI Bank:

ICICI Bank offers interest rates between 3% to 7% on deposits below INR 2 crore for tenure ranging between 7 days to 10 years. For tax-saving fixed deposits, the bank offers an interest rate of 7%.

Tax Saving FD Calculator

There are two types of FDs namely Simple Interest FD and compound Interest FD.

1. Simple Interest FD:

M = P + (P x r x t/100), where –

P is the principal amount that you deposit
r is the rate of interest per annum
t is the tenure in years

For example, if you deposit a sum of INR 1,00,000 for 5 years at 10% interest, the equation reads –

M = INR 1,00,000 + (1,00,000 x 10 x 5/100)

= INR 1,50,000

2. Compound interest FD:

M= P + P {(1 + i/100) t – 1}, where –

P is the principal amount
i is the rate of interest per period
t is the tenure

For example, if you take the same variables, the compound interest FD will accrue,

M= INR 1,00,000 {(1 + 10/100) 5-1}

Or, INR 1,61,051

How to Close a Tax-Saving FD?

The tax saving FDs have a lock-in period of 5 years, hence premature withdrawal of funds is not allowed. However, in the case of death, the legal heir or the nominee will receive the premature amount before the end of the lock-in period. In most of the tax-saving FDs, the maturity period is 10 years, hence after the lock-in period i.e. 5 years, the amount can be withdrawn.

Steps to Close FD Account on Maturity:

Step 1: Visit the bank and provide the fixed deposit certificate, which must be signed by all account holders.

Step 2: An account holder can get the FD closed, renew it, transfer the funds into a new FD or investment, and withdraw some funds while retaining some in the FD.

Step 3: Submit a letter detailing the preference and necessary action details.

For Example, an IndusInd account holder Mr. A deposits a sum of INR 2,00,000 for 5 years at 10% interest, the equation reads –

M = INR 2,00,000 + (2,00,000 x 10 x 5/100)

= INR 3,00,000

Now, on maturity, Mr. A will visit the bank and provide the FD Certificate to get the amount in his bank account. After which, he can check the account balance using the IndusInd Bank Balance Check Number afterward sitting at home.

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Documents Required

Steps to Close FD Account on Maturity:

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