Most banks offer a different category of FDs, called tax-saver FDs, in which tax deduction benefits can be claimed on investments up to Rs 1.5 lakh in a financial year.
Guaranteed returns are possibly the biggest reason behind the astronomical popularity of fixed deposits in our country. However, with the Reserve Bank of India keeping the repo rate unchanged at a low of 4% for over a year now, most banks have reduced their fixed deposit interest rates.
This, coupled with the fact that FD returns are fully taxable according to the investor’s income tax slab rate, further reduces the real rate of returns impacting the associated financial goals of depositors. This has also been a worrying trend for countless risk-averse investors in the country like the senior citizens who often rely on their FD returns even for their day-to-day expenses.
That being said, most banks (and post offices) offer a different category of FDs, called tax-saver FDs, in which tax deduction benefits can be claimed on investments up to Rs 1.5 lakh in a financial year under Section 80C of the I-T Act. This could be a great tax-saving and low-risk investment especially for senior citizens who usually get preferential interest rates on FDs. Investors, however, must keep in mind that tax-saving FDs come with a lock-in period of 5 years and premature withdrawals are not allowed, according to BankBazaar.
These FDs could be opened by individuals and Hindu Undivided Families (HUFs) in ‘single’ or ‘joint’ mode of holding, but they cannot be collateralized for a loan. If a tax-saving FD is opened in a ‘joint’ mode of holding, only the first holder can claim the tax deduction benefits.
Also note, TDS is applicable on the returns as per the investor’s slab rate; however, senior citizens can avoid this by submitting Form 15H (Form 15G for non-senior-citizen depositors) to the bank. Senior citizens are also eligible for tax deduction of Rs 50,000 on interest income from deposits under Section 80TTB of the I-T Act, subject to terms and conditions.
So, if you’re a senior citizen and looking to invest in a tax-saving FD, here are the current interest rates being offered by some of the leading public, private and small finance banks — including SBI, HDFC Bank, PNB, Axis Bank, and ICICI Bank — in the country. We’ve also provided the indicative corpus for each of the bank offers on an investment of Rs 1.5 lakh for five years assuming quarterly compounding of interest. Investors would be well-advised to get complete clarity on all the associated terms and conditions before finalizing any investment decision.
Interest Rate on Senior Citizens’ Tax-Saving FDs Currently Being Offered By Leading Banks
Disclaimer: Data as on respective banks’ websites on August 3, 2021. Interest rates of all listed (BSE) public, private and small finance Indian banks have been considered for data compilation. Banks for which data is not readily available on their websites have not been considered. The table includes only tax-saving FDs for senior citizens (excluding super senior citizens) for 5-year tenures, and banks have been listed in descending order as per interest rate within their category. *Assuming quarterly compounding of interest for all the banks.
Data compiled by BankBazaar.com, an online marketplace for loans, credit cards and more.