Tax-saving FDs come with a lock-in of five years and all resident individuals and Hindu Undivided Families can invest anywhere between Rs 100 and Rs 1.5 lakh in them in a financial year.
Tax-saving FDs could be a great last-minute tax-saving step as they can be quickly opened in online or offline modes, depending on the bank’s terms and conditions.
Tax-saving fixed deposits (FDs) are great low-risk investment instruments that generate assured returns and are usually extremely easy to open and operate. However, investors must realise that they are different from regular FDs in several ways.
Tax-saving FDs come with a lock-in of five years and all resident individuals and Hindu Undivided Families (HUFs) can invest anywhere between Rs 100 and Rs 1.5 lakh in them in a financial year. However, unlike regular FDs, tax-saving FD investments qualify for tax-deduction benefits up to Rs 1.5 lakh under Section 80C of the Income Tax Act in a financial year. That being said, the interest incomes in tax-saving FDs are taxed according to the applicable income tax slab rate like regular FDs, according to BankBazaar.com.
Also, tax-saving FDs can be opened in “single” or “joint” mode and an adult can open such an FD jointly with a minor. However, in the case of joint holding, the tax-deduction benefits can be claimed only by the first holder. Nomination facility is also available for tax-saving FDs.
However, as mentioned earlier, depositors cannot withdraw their investment before five years in a tax-saving FD and there is also no auto-renewal facility. In addition, loans or overdrafts are not allowed against tax-saving FDs but investors can choose between cumulative or non-cumulative interest payouts, the latter usually available in monthly or quarterly options. Senior citizen depositors often get preferential interest rates up to 0.75% compared to non-senior citizen depositors.
As such, tax-saving FDs could be a great last-minute tax-saving step as they can be quickly opened in online or offline modes, depending on the bank’s terms and conditions. These debt investments are less risky than market-linked instruments like ELSS and involve smaller lock-in requirements than many other small savings schemes like PPF.
That being said, senior citizen depositors should also consider investing in the Senior Citizen Savings Scheme that also comes with a five-year lock-in but offers higher returns than tax-saving FDs while investors can invest up to Rs 15 lakh in them. And younger investors can also consider ELSS for higher returns and investment liquidity (ELSS come with a lock-in of 3 years) and similar tax-deduction benefits albeit with moderate-to-high investment risk, says BankBazaar.
So, if you’re looking to invest in tax-saving FDs, here are 10 banks currently offering the highest interest rates in India.
10 Banks Currently Offering Highest Interest Rates on Tax-Saving FDs (non-senior citizen depositors)
Disclaimer: Data as on respective banks’ websites on October 14, 2020; table includes only Tax-Saving FDs (for non-senior citizens) for a 5-year tenure. Data compiled by BankBazaar.com.