What is Tax Saving Fixed Deposit (FD)? Know the FD benefits & Rates in India

Written by : Knowledge Centre Team

2026-01-02

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10 minutes read

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Key Takeaways

Tax-saving fixed deposits (FDs) provide tax deductions under Section 80C of the Income Tax Act to ₹1.5 lakh per year.
These FDs come with a lock-in period of five years and do not allow premature withdrawals, loans, or overdrafts.
Though the interest is taxed, the principal amount is exempt from tax.
Senior citizens are eligible for one more deduction of ₹50,000 under Section 80TTB.

Fixed deposits do not offer a lot of returns, yet, finding people opting for the same? The lock-in period further compromises the liquidity and hence might be a big no for you. But it’s time to reconsider your decision. Among numerous other options, fixed deposits are one of the safest methods of saving taxes.

Yes, you read it right. The tax-saving FDs are eligible for claiming deductions under Section 80C of the Income Tax Act, 1961. However, the interest obtained from these deposits is taxable. Reconsidering your choices by now? Read on to make a logical and information-based decision.

Understanding Tax Saving Fixed Deposit

Fixed deposit involves the deposition of a lump sum amount for a specific tenure. The interest rate is fixed and thus protected from market volatility. The rates are also higher than those of a regular savings account. The fixed deposits, hence, are the safest option to invest and can further be renewed for the next term on maturity at the choice of the investor.

The tax deduction on fixed deposit is applicable under Section 80C of the Income Tax Act, 1961. The investors can claim a maximum of ₹1.5 lakhs per annum with this account. However, do note that the interest earned on this type of fixed deposit is taxable. Further, the senior citizens, i.e., the individuals aged equal to or above 60 years) can claim an additional tax deduction. It comes under Section 80TTB of the Income Tax Act and can be up to ₹50,000 on the interest income of deposits.

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Features of Tax Saving Fixed Deposit

The key features of tax saving fixed deposits are:

Ability to claim tax deduction under the Income Tax Act up to ₹1.5 lakh
Minimum required principal amount is ₹1000
Lock-in period is five years
No auto-renewal facility on such fixed deposits
No premature withdrawals, overdraft and loan facilities
No premature closure of the fixed deposit except in case of the death of the depositor
Flexible interest payouts at monthly, quarterly and half-yearly periods as per one’s flexibility
Fixed interest rate throughout the tenure
Can be opened for both single and joint accounts, but tax benefits are applicable only for the first account holder.
Interest rates vary across banks and for applicants

Did You Know?

More than 93% of income tax returns were filed online in FY 2023–24 using e filing 2.0.

Source: The Economic Times.

Benefits of Tax Savings FDs Over Other Methods

While there are multiple other options to save taxes, the tax saving fixed deposits stand out over those. Here is why:

Equity Linked Savings Scheme (ELSS) is a considerable option with a lower lock-in period and minimum investment. However, fixed deposits offer no risk from market dynamics due to a fixed interest rate, unlike ELSS.
Public Provider Fund (PPF) is another safer option. However, the downside is the presence of a lock-in period of 15 years compared to 5 years of fixed deposits.
The National Pension System (NPS) is also an option with higher returns and partial taxation of returns. But the lock-in period here again is lengthy, i.e., till retirement.

Should You Invest in Tax Saving Fixed Deposit?

The investment is beneficial for you in the following situations:

If you are looking for tax saving options to be included in Section 80C of the Income Tax Act
If you do not wish to take a risk on your investments

Eligibility for Tax Saving Fixed Deposit

Tax saving fixed deposits are available under various term deposit schemes offered by banks and financial institutions. They are well-suited for individuals belonging to the following categories:

Businessmen
Salaried employees
Professionals who pay income tax

The aspects to consider for eligibility in this tax saver scheme encompass:

An individual's account can be in the name of the individual for himself or in the capacity of the Karta of a Hindu Undivided Family (HUF).
A joint account must be opened by two adults or by an adult and a minor. It is payable to any of the two holders or the survivors.
Income tax benefits in a joint account will be available only for the first account holder.

Document Requirement for Tax Saving Fixed Deposit

The following documents are generally required:

Identity proof for KYC, which includes PAN card, voter ID card, driving license or government ID card
Address proof for KYC, which includes a telephone or electricity bill, a passport or a bank statement
Copy of PAN card
A passport-sized picture of the applicant

Conclusion

Tax saving fixed deposits are one of the safest and simplest methods to save taxes. With an investment lock-in period of five years, these offer tax benefits under Section 80C of the Income Tax Act. These are practical options for protecting funds from market risks while gaining considerable returns. The hassle-free method can be your choice for a well-planned budget or as a last-minute resort to save taxes.

Glossary

e filing 2.0: The advanced income tax filing platform by the government of India for simpler and quicker ITR filing.
Income Tax Slab: The structure of tax rates against various ranges of income under the New and Old tax regimes.
Section 80C: A provision of the Income Tax Act for deduction up to ₹1.5 lakh for particular investments.
ULIP: Unit Linked Insurance Plan brings insurance together with equity/debt investment.
Section 10(10D): Tax-free maturity benefits from life insurance policies, subject to specific conditions.

FAQs

The income tax is applicable on the interest earned by the fixed deposit. The principal amount invested and received back is tax-free.

To obtain maximum benefit from the tax saving fixed deposit, the investment amount depends on the tax savings you are already claiming from Section 80C of the Income Tax Act. If there is scope for more deductions under ₹1.5 lakh limit, accordingly decide the amount to invest.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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