Tax-saving FDs are fixed deposits that come with a lock-in period of 5 years and provide tax deduction on your investments under Section 80C of the I-T Act.
Being low-risk while providing guaranteed returns, fixed deposits have been extremely popular in India, especially with senior citizens. Investing in FDs ensures interest on a monthly, quarterly, or annual basis. However, with the Reserve Bank of India (RBI) keeping the key repo rate unchanged at a 4% low for over a year now, most banks have reduced interest rates on FDs.
Also, since FD returns are fully taxable as per the income tax slab of the investor, it further reduces the actual rate of returns. Accounting for inflation, post-tax FD returns may actually be negative. This has left many senior citizen investors confused on whether to depend on FDs for a regular income in managing expenses.
Tax-saving FDs, on the other hand, are fixed deposits that come with a lock-in period of 5 years and provide tax deduction on your investments under Section 80C of the Income Tax Act. Senior citizen investors can claim a deduction of up to Rs 1.5 lakh a year for their investments in these tax-saving fixed deposits. It is an excellent investment option for senior citizens as most banks offer an additional 0.5% interest rate to them. However, do keep in mind that premature withdrawals are not allowed because of the lock-in period, according to BankBazaar.
A senior citizen can open a tax-saving FD account in a ‘single’ or ‘joint’ mode of holding. That being said, it is important to note that only the first holder can claim the tax deduction benefits in case of a tax-saving FD opened in a ‘joint’ mode of holding.
Generally, TDS is applicable on the FD returns as per the investor’s slab rate. However, senior citizens can submit Form 15H (Form 15G for non-senior-citizen depositors) to the bank to avoid TDS. Senior citizens are also eligible to avail a tax deduction of Rs. 50,000 on the interest income from deposits under Section 80TTB of the I-T Act, depending on terms and conditions.
So, if you’re a senior citizen and want 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 in the country.
The table also provides the indicative corpus for each of the bank’s offers on an investment of Rs 1.5 lakh for five years assuming quarterly compounding of interest. Before investing, however, do get clarity on all the associated terms and conditions before finalizing any investment decision.
INTEREST ON TAX-SAVING FDS (FOR SENIOR CITIZENS)
Disclaimer: Data as on respective banks’ websites on September 14, 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 tenure. *Assuming quarterly compounding of interest for all the banks.
Data compiled by BankBazaar.com, an online marketplace for loans, credit cards and more.