What is a Tax-Saving Fixed Deposit?

Fixed Deposit (FDs) are popular modes of investment since they are stable instruments that offer predictable returns. However, the interest earned on FDs, often diminishes in size after tax deduction. Tax-saver FDs constitute a separate category of fixed deposit accounts that help customers leverage Section 80C of the Income Tax Act, 1961 to save more tax on their FDs.

What is a tax-saving fixed deposit account, and what are its features?

To understand the defining feature of a tax-saving fixed deposit, you must know more about Section 80C of the Income Tax Act. Under this section, a taxpayer is eligible to claim an income tax deduction of up to ₹1.5 lakh every financial year on certain investments.

These instruments include five-year tax-saving FDs, Provident Fund (PF) investments, Public Provident Fund (PPF) investments, and Equity-Linked Savings Schemes (ELSS) investments, among others. A tax-saving FD helps investors save more money by helping them claim this invested amount as a deduction from the gross total income under Section 80C. It’s important to note that the interest on a tax-saver FD is still taxable. Its primary benefit is that it helps you reduce your overall taxable income in a given financial year.

Here are other key features of tax-saving FDs that you must know:

• You can book a tax-saving FD online:You can use your bank’s mobile banking services to open a tax-saving FD online. IndusInd Bank customers, for instance, can use the IndusMobile app to instantly open a tax-saver FD without visiting a bank branch. A tax-saving FD can be booked online without any hassle and requires only PAN and Aadhaar card details. 

• You can choose the frequency of interest payout:While opening a tax-saving fixed deposit account online, you can choose the frequency at which you wish to receive interest payouts – monthly, quarterly, or half-yearly basis or at maturity.
• These FDs offer fixed returns and are safe investment instruments:Tax-saving FDs also provide some of the key benefits of regular fixed deposit accounts such as fixed returns over time. The interest rate of tax-saving FDs, too, remains fixed throughout the investment duration. 

• Tax-saving FDs have a lock-in period: Tax-saver FDs have a five-year-long lock-in period. Since it is a tax-saving instrument, it comes with a mandatory lock-in period before which you cannot access your funds.

Benefits of opening a tax-saving fixed deposit account

The following table summarises the key advantages of opening a tax-saving FD account:

Steps you must follow to grow your wealth using a tax-saving FD

Here are the main steps to be followed:

• Register for the bank’s mobile banking services:Online tax-saver FDs can be opened directly through a bank’s mobile banking app. You must first register for these services. 

• Check your future returns using an online FD returns calculator:These are free, online tools that are hosted on the websites of major banks. You can use an online FD calculator to compare the FDs offered by different banks and choose the best one. 

• Submit the required documents as requested by the bank:The two main documents required are your Aadhaar card and PAN card. 

• Choose the ‘tax-saver FD’ option while opening your account:Check the lock-in period-related conditions specified by the bank. 

In summary

Tax-saving fixed deposit accounts are FDs that help you reduce your taxable income up to ₹1.5 lakh per financial year by leveraging Section 80C. They offer attractive FD rates and flexible features, while also allowing you to apply online through a bank’s mobile banking app. If you wish to earn higher tax-adjusted returns through FDs, open an online tax-saver fixed deposit account today!