Tax-saving fixed deposits are a good option to get better returns as well as income tax deduction under section 80C of the Income Tax Act, 1961.
Fixed deposits still continue to top the chart when it comes to tax-saving investments, despite the recent rate cuts in interest rates. The popularity of FD is because it is a bank-based investment product, monitored by the RBI. Hence, investors rely on its safe and low-risk nature, similar to other bank fixed deposits as any redemption on maturity from tax-saving FDs comes directly to the account holder’s bank account.
Experts suggest tax-saving fixed deposits are a good way to get tax deduction u/s 80C of the Income Tax Act, 1961. There are two types of accounts: single-holding account and joint-holding account. You can claim a deduction of up to a maximum of Rs 1.5 lakh by investing in tax saving fixed deposits. However, no partial or pre-mature withdrawal is allowed. These tax-saving fixed deposits come with a booking period of a minimum of five years and a maximum of 10 years.
Various banks such as Axis Bank, SBI, ICICI Bank and HDFC Bank offer tax-saving fixed deposit schemes. The interest rates offered by banks generally range from 6.50 per cent to 8.25 per cent for the general public and 7.00 per cent to 8.75 per cent for senior citizens.
Three types of tax-saver fixed deposits are offered by Axis Bank: One providing a quarterly payout of interest, reinvestment deposit, and monthly interest payout. For regular depositors, Axis Bank offers an interest rate of 7.00 per cent per annum and 7.50 per cent for senior citizens. These FDs come with a lock-in period of five years starting from the date of receipt.
State Bank of India (SBI)
Tax-saver fixed deposits of SBI comes with a lock-in period of five years. As an investor, you can claim benefits under Section 80C and can invest up to Rs 1.5 lakh every year. SBI offers an interest rate of 6.80 per cent per annum and 7.30 per cent interest rate for senior citizens. SBI allows a minimum deposit of Rs 1,000 and the maximum limit is Rs 1.5 lakh. By logging into SBI’s net banking account, you can open an SBI fixed deposit account online.
ICICI Bank also offers two tax saving fixed deposit plans: a ‘traditional plan’ whose interest payout is on a monthly or quarterly basis and the ‘reinvestment plan’ that pays interest compounded quarterly and reinvested with the principal amount. ICICI Bank allows a minimum investment of Rs 10,000 and a maximum of Rs 1.5lakh. Tax saver fixed deposits of ICICI comes for a duration of five years and offer 7.25 per cent interest per annum on a tax saver fixed deposit for the general public and 7.75 per cent for senior citizens.
Tax-saver fixed deposits of HDFC Bank come with a lock-in period of 5 years. Interest on HDFC FD is on a monthly or quarterly basis payout. The bank offers 7.25 per cent interest per annum to regular investors and 7.75 per cent to senior citizens. You can start with a minimum of Rs 100 and invest up to a maximum of Rs 1.5 lakh.