Are you thinking of saving tax and growing money? An FD (fixed deposit) might be a good choice. Tax‑saving FDs let you save tax under Section 80C and earn returns. But they come with specific rules and limits. Let’s explore what you must know.
Who Can Invest?
Tax‑saving fixed deposits are open to:
- Resident individuals
- Hindu Undivided Families (HUFs)
- Non‑Resident Indians (NRIs)
- Senior citizens
- Minors (with adults as joint holders)
All of these can invest, but only the first account holder gets the 80C tax benefit.
How Much Can You Invest?
You can invest up to ₹1.5 lakh per financial year. This amount qualifies for deduction under Section 80C.
- The minimum deposit is small (banks accept from ₹100 to ₹1,000)
- No maximum cap, but only ₹1.5 lakh is eligible for tax deduction.
Lock‑In Period
These FDs have a strict 5‑year lock‑in. During this time:
- No premature withdrawals
- No loans or overdrafts are allowed
After 5 years, you must manually renew if you want to continue earning interest.
What are the FD Interest Rates?
The interest rates of fixed deposits can change by bank and category:
- Most banks offer 5.5% to 7.75% p.a. on tax‑saving FDs
- Bank offers around 6.2% to 7.65% for 5‑year tax‑saving FDs
- Senior citizens get an added 0.25% to 0.5% extra interest
For context, general FD interest rates across banks (non-tax-saving) range similarly.
Tax on Interest and TDS
Interest on these deposits is fully taxable as “income from other sources.”
- Banks deduct TDS at 10% once interest exceeds ₹40,000 (₹50,000 for seniors).
- From FY 2025–26, thresholds rise to ₹50,000 (general) and ₹1 lakh (seniors).
You can avoid TDS by submitting Form 15G/H if your total income is below the exemption limit. Even if TDS is deducted, interest still counts as taxable; you can claim a refund in your ITR if overpaid.
Account Types and Modes
You can open tax‑saving FDs in:
- Single or joint mode
- In joint accounts, only the first holder gets the 80C benefit.
After maturity, the FD does not auto‑renew. So, you need to reinvest manually.
Comparing Tax‑Saving FD with Normal FD
| Feature | Tax‑Saving FD | Normal Fixed Deposit |
| Lock-in period | 5 years | Flexible (7 days to 10 years) |
| Section 80C benefit | Up to ₹1.5 lakh | No |
| Premature withdrawal | Not allowed | Allowed with a penalty |
| Interest payout | Monthly/quarterly/annual | Flexible |
| TDS threshold | ₹40 k/₹50 k | ₹ 40k across all FDs |
Is it a Good Option?
Whether it is a good option for you will hugely depend on a few things. Tax‑saving FDs are ideal for you if:
- You seek safe, fixed returns with some tax relief.
- You can lock money for five years.
- Your income is high enough for interest to be taxed.
Also, remember:
- Interest is taxable, so the effective return is lower.
- Better options like PPF or ELSS offer tax-free or higher returns but have different risks and lock-ins.
How to Make the Most of an FD
You must know the top ways that would help you take the utmost benefit of tax-saving FDs. The key tips are:
- Plan early and invest before the financial year-end
- Use Form 15G/H to avoid unnecessary TDS
- Choose interest payout options matching your cash flow
- Compare banks for the best FD interest rates
- Track maturity and reinvest or withdraw smartly
Final Takeaway
So, now you know the rules for tax-saving fixed deposits in India. Tax‑saving fixed deposits are a simple and secure tool to save tax and earn interest. There are just a few things that you should remember, though:
- Lock-in is mandatory for 5 years
- Interest is taxable even if the investment is tax-saving
- TDS occurs beyond thresholds but can be avoided with forms
With clear planning, a tax‑saving FD can be a helpful part of your savings strategy.