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Fixed Deposits (FD) for saving income tax through section 80C

FDs are now included as eligible investments under section 80C. But is investment in all FDs eligible? What are the characteristics of these tax saving fixed deposits?

[This article as been inspired by a query from the user Dheeraj Rokade]



Section 80C is the most popular avenue for saving income tax for most people.

(To know more, please read “Saving Income Tax – Understanding Section 80C Deductions”)

At the same time, fixed deposits (FDs) have been one of the favourite investment avenues for Indian investors, because they are safe and give decent returns.

(Please read “Fixed Deposit (FD) – A favourite for generations” to know more about FDs)

Now, there is good news for all of us – investments made in FDs are allowed for deduction from your income u/s 80C of the Income Tax Act.

But not all FDs are covered under this – the tax saving FDs have some specific characteristics. Most banks offer these FDs separately and different from regular FDs.

So, let’s understand these tax efficient FDs better.


Lock-in period

These FDs have a lock-in period of 5 years. This means that once you invest, you can not withdraw the amount for 5 years.

These FDs can not be pledged for any reason for these 5 years. Also, no overdraft facility is available for these tax saver fixed deposits.

No sweep-in facility

The tax saving FD can not be linked to a savings account. They can not have a sweep-in (or auto sweep) facility, where surplus money from a savings account is automatically transferred to an FD account (or is saved as an FD).

(To know more about earning through the auto sweep facility, please read “Auto Sweep Facility: Smart way to make your money work harder”)

Rate of Interest

The rate of interest offered on these FDs is in line with interest rate offered on similar FDs of 5 years maturity.

However, some banks do have slightly different interest rates for these special, tax saving FDs.


Payment of Interest

Like any other fixed deposit, you can choose to receive the interest periodically, or you can cumulate it and receive it at the time of maturity.

If you opt for cumulative interest option, the interest reinvested in the FD is not considered as fresh investment u/s 80C.

(This is unlike the National Savings Certificates, where interest is treated as reinvested for section 80C benefit. Please read “National Savings Certificate (NSC)” for more)

Interest earned and income tax

The interest earned on a tax saving FD is not tax free. It is fully taxable, just like the interest earned on a regular FD.

Who can save tax using these FDs?

Any individual or a Hindu Undivided Family (HUF) can invest in these FDs and save income tax.

These FDs can be held jointly in two names. They can also be held with a minor being a joint holder.

Note: When you go to a bank to open a tax saving FD, please mention it upfront that you want a tax saving FD and not a regular FD – this is because banks offer these tax saver FDs as separate and distinct from regular FDs.

Joint names and income tax

If two people invest in the tax saving FD and become joint holders, the tax benefit as per section 80C would be available only to the first holder.


How much tax can be saved?

The investment made in a tax saving FD is considered for section 80C, and the upper limit of investment as per section 80C is Rs. 1 Lakh.

(To know more, please read “Saving Income Tax – Understanding Section 80C Deductions”)

Thus, the maximum tax saving that you can get is by investing Rs. 1 Lakh in these FDs.

The amount of tax that you save would depend on the income tax slab that you fall in – it could be 10%, 20% or 30% of the amount invested in this FD.

(To know the current income tax slabs, please read “Income Tax (IT) Slabs / Brackets – FY 2008-09 AY 2009-10”)

Who offers these FDs?

Most public and private banks offer these tax saving FDs. Some of the banks are:

  • State Bank of India (SBI)
  • ICICI Bank
  • HDFC Bank
  • IDBI Ltd.
  • Canara Bank
  • Allahabad Bank
  • Union Bank of India (UBI)
  • Syndicate Bank

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Comments

  1. dear sir,
    i want to know that if i had made fixed deposit in the name of my wife. will it be consider as investment & allowed as deduction u/s 80C to me.

    waiting for your reply

  2. Anonymous says:

    Hi Niraj,

    If investment in a tax saving FD is made in a relative’s name (wife, son / daughter – children, brother / sister – sibling, father / mother – parents), it is not considered for deduction u/s 80C. The investment has to be in your name.

    Thus, investment by you in a fixed deposit in the name of your wife would not count towards section 80C investment.

  3. Anonymous says:

    Hi Tarun,

    Tax saving FDs are similar to regular FDs in all respects (except for their duration and their notified status).

    Therefore, it should be possible to avail loans against tax saving FDs just like regular FDs.

  4. Is it possible to take loan against tax saving FD’s.

  5. aradhana says:

    suppose you have an Short term FDof six months and you reinvest the same again along with the interest earned on it, will the interest earned attract tax on it or as reinvested it will be tax free.

  6. Anonymous says:

    Hi Aradhana,

    Interest earned from all fixed deposits of all durations is taxable.

  7. Hello, This is slightly confusing, as accoridng to IT taxsaver FD is open to Any individual. But the Banks dont allow NRI to invest in these FD’s. How Can an NRI take advantage of this tax benefit?
    Regards
    Aneez

  8. Hello,
    Banks don’t allow an NRI to open a Taxsaver deposit, as it is not a valid Account for an NRI according to RBI regulations. I’ve tried many banks, and thats the case. However is it possible that i invest in a NRO-FD fixed for 5 yeats to utilise this tax benefit.?
    Regards

    Aneez

  9. Anonymous says:

    Hi Aneez,

    I do not think there is any restriction on NRIs opening a tax saving FD. I am not sure why your bank wouldn’t allow you to open it.

    You can probably take it up with your advisor or the branch manager.

  10. Anonymous says:

    Hi Aneez,

    I do not believe NRO-FD for 5 years would save you any income tax – you can save tax only by investing in specific, notified FDs of 5 years or more.

  11. Anonymous says:

    Hi Hemant,

    Unfortunately, you can not do this.

  12. I have taken a loan against my FD. Since I am liable to pay income tax on interest earned on FD. Can that interest income will be adjusted against the interest I am paying because of my loan against the FD.

  13. Anonymous says:

    Hi,

    As in most of the tax saving FD documents, it is mentioned that it can not be as collateral to secure a loan. Similarly, banks do not offer overdraft facility on tax-saver deposits.

    Can somebody please tell me which bank provides loan against Tax Saving FDs?

    Thanks and Regards,
    Patodi

  14. Mayur Joshi says:

    The amount earned after paying taxes is deposited in the Bank, and the same amount is converted to fixed deposits for one year. If the TDS is deducted by bank at the rate of 10 %, is it mandatory to show the earnings of these FD in incometax declaration? If i am in 20% tax barcket, do i need to pay extra 10% tax?

  15. Hi,

    I would like to know how much of tax rebate I can get on Medical expenses. I have spent around 70,000 for infertility treatment and 20,000 for KIdney stones. I donot have any medical insurances.

    Sunanda

  16. Is it possible to get tax benefit u/s 10(10d) by investing in FD.

  17. Father and mother jointlly deposited e or s in tax saver fd .Now my mother is deeceed and father want to include my name as second depositer because he had stroke in right hand will be difficult to operate the account and my wief as nominee .Kindly let us know the posibility

  18. Wasim Ahmad says:

    Hi

    I have a joint savings account with my wife, with me being the first/primary holder. If i invest in tax saving FD with the same bank, will i be eligible to claim the tax benefit?

  19. Dear SIr,
    if FD amount 1 lac (5years) then i am tax benefit taken under 80C this financial year. i want to know this benefit taken next financial year ?

  20. if FD amount 1 lac (5years) then i am tax benefit taken under 80C this financial year. i want to know this benefit taken next financial year ?

  21. The amount earned after paying taxes is deposited in the Bank, and the same amount is converted to fixed deposits for one year. If the TDS is deducted by bank at the rate of 10 %, is it mandatory to show the earnings of these FD in incometax declaration? If i am in 20% tax bracket, do i need to pay extra 10% tax?

  22. Can FDs in co-op. banks or co-op credit society be included for deductions?

  23. sir, my friend has made various Fixed Deposits like short term and long term, the source of income for these deposits is by income from sale of plot, now my query is that is there any problem in relation to income tax? kindly reply me at the earliest – thanking you

    regards
    pratap

  24. I also have the exact same question as Rajendra. If I FD for 5 yeares of 1 lack for this financial year and avail tax benefit, what about next year? Do I need to do one more lack for another 5 years? To put it simply, can this 1 lack FD be shown for 5 years under 80C?

    Thanks!

  25. sir can i take education loan agest my fd plz give me full detail about this

  26. Chandra Sekhar says:

    Dear,

    Recently i have opened a Tax saving Fixed deposit in SBI for an amount of 30000 Rs in Sep’2011. Now i want to calcle/ withdraw that full amount, is it possible to cancel/ withdraw the tax saving fixed deposit.
    If yes, please provide the details for cancellation and the charges applicable for that and do let me know the interest rate which will calculate for this period

  27. Hi,

    If I have put FD amount this year for rs.1 lac (5years) , then i will get tax benefit taken under 80C this financial year. I want to know this benefit taken next 4 financial years ?

  28. hi,
    I have invest Rs.10,000/- as FD in SBI tax saving scheme. but i don’t know this is under section 80c or not and bank not mention it on receipt so that’s why my office not consider it as investment under 80c. so what i do please guide me.

  29. Goutam Chand says:

    I have taken an FD on tax saving three month earlier and unfortunetly get into financial problem and need some money to settle down them by cancelled the FD but my banker says that i can’t liquided the FD nor get any loan from it . how can resolve the problem pls help . i’m in very much worried about th matter
    Goutam Chand

  30. Samir Shah says:

    I have few fixed deposits with banks. I have kept the same on cummaltive maturity for different epriods. I fall in 30.6% tax bracket.
    Banks deduct 10.3% interest every year and send me TDS certificates. However I have decided to pay the balance 20.6 % in the financial year at the time of maturity.

    Is this allowed?

    How do i show different TDS certificate entries in Income tax forms?

    reg..shah.

  31. changeindia says:

    Hi,
    Remove the Popup Ad in this page. Its not good.
    thx

  32. I understand that the Maximum Limit for Tax-Saving FD under 80C is Rs. 1,00,000. Now, my question is can I make up the total Rs. 1,00,000 limit in more than one part (say, one for Rs 30,000, another for Rs 20,000 and still another for Rs. 50,000) AND on different dates &/or in different Banks (Of course, IN THE APPLICABLE FINANCIAL YEAR ?

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