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Tax Saving FDs
Fixed Deposits which qualify as tax saving instruments under Section 80C

Tax Savings FDs are a special fixed deposit instruments which provide investors tax benefits of Section 80C along with satisfaction of holding a traditional Fixed Deposit. These are like normal fixed deposits except their name, tenure and deductibility as tax savings.

These are much safer and very convenient as can easily be done online through net banking. Almost every bank offers 'Tax Saving FDs' with slight changes in interest rates and other related terms and conditions.

Post Office also offers Tax Saving FDs on the same line called as Time Deposits. 

Maturity period
This is the area where tax saving FDs differ from other routine FDs. Tax saving FDs have a minimum maturity period of 5 years which means funds are to be locked in for atleast 5 years. Some banks offer Tax Saving FDs for longer tenure too.

Post Office Time Deposits are also having maturity period of 5 years.

Interest on Tax Saving FDs
As of now ie financial year 2019-20 banks are offering interest of 5.25% to 6.80% to their customers on their Tax Saving FDs. For senior citizens this rate can be a bit higher. Interest rates on Tax Savings FDs varies from year to year depending upon various factors.

Post Office Time Deposits provide interest of around 7.70% per year.

Tax Implications
  • Deductible u/s 80C-
Tax Saving FDs as the name suggests are eligible for deduction as tax savings under Section 80C within the overall limit of 150000.
  • Interest received is Taxable-
Tax saving FDs should not be confused as tax free FDs. The interest income from these FDs is taxable as income from other sources. Due to this fact of interest being taxable the final effective return from these FDs gets reduced.

  1. Tax Saving FDs are termed to be safe investments.
  2. Funds are invested for a short period of 5 years.
  3. These are convenient as many banks provide the facility to invest the funds online.
  4. On redemption funds will directly be credited to your savings account.
  1. The Interest earned is taxable. 
  2. Tax will be deducted(TDS) by bank at applicable rates on interest earned. 
  3. No premature withdrawal is possible, ie. you can not withraw money before the 5 year lock in period.
  4. Can not be pledged with banks to secure Loans.
My Suggesson:
If you are planning to invest in Tax Saving FDs, opt for some large public sector and private sector banks. Lucrative schemes and higher interest rates offered by small co-operative banks are better to be avoided as these can be risky.

Other Tax Saving options:

Plan your taxes

TDS Rules for FD interest income

All about Public Provident Fund(PPF)

ELSS (Equity Linked Saving Schemes)

NSC-Natioal Savings Certificate

Save the Girl Child Initiaive in tax savings-Sukanya Samriddhi Account

Some quick reads for Senior & Super Senior Citizens

No tax upto income of ₹ 3,00,000 / ₹ 5,00,000- Read in detail the applicable Tax Rates

Enhanced limits for medical insurance premium u/s 80D

Deduction u/s 80DDB for expenditure on specified desease for senior citizens

Enhanced benefit of ₹ 50000 as deduction of interest from deposits u/ 80TTB

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