Everything to Know About a Tax-Saving Fixed Deposit


When investing, your primary concern is always the degree of risk and rate of return. Well, fixed deposits (FDs) are a consistent and safest investment with modest returns. Typically people who prefer minimal risk to large profits consider this investment option.

What happens in a fixed deposit is that you deposit a lump sum amount and earn a regular income for a particular duration.

However, the earnings you made through FDs are taxable. If you’re looking for FDs that can help you save on taxes, a tax-saving fixed deposit is what you should consider.

To learn more about tax-saving fixed deposits, read on!

What is a tax-saving FD?

As the name suggests, a tax-saving FD offers the investor fixed income and tax savings.

In a tax-saving FD, you can avail a deduction equal to the amount invested in the tax-saving fixed deposit, up to Rs. 1,50,000.

This FD has a lock-in tenure of 5 years. While the FD account has the option of joint holders, only the first holder of a joint account may only gain from the tax advantages.

Features of a tax-saving fixed deposit

Tax-saving FD provides tax advantages in addition to good returns. A tax-saving fixed deposit has the following characteristics:

  • It has a lock-in tenure of five years.
  • If you invest in a tax-saving fixed deposit, the maximum exemption available on the invested amount is up to Rs. 1.5 Lakh. Here, only the year of investment is valid for the tax benefits.
  • However, an investor’s interest on this FD is taxable and deducted at source (i.e., TDS).
  • Unlike a regular FD, a tax-saving FD does not permit loans or overdraft (OD) facilities or premature withdrawals.
  • A tax-saving fixed deposit does not have an auto-renewal feature.
  • Over five years, the interest rates on tax-savings FDs remain constant.
  • The frequency of interest payments is flexible; there is an option to choose the payout between monthly, quarterly, or reinvesting.

How does a tax-saving FD work?

Let’s use an example to understand better how a tax-saving fixed deposit works:

Mr Aman made a five-year investment of Rs. 1,00,000 in a tax-saving fixed deposit in 2021.

Now, u/s 80C of the Income Tax Act, he can claim a deduction of Rs. 1,00,000. He can only claim the tax advantage for FY 2021–2022, as he invested in 2021.

The invested money is locked up for a 5-year term. As a result, the FD will expire in 2026, and the interest rate will not change.

He can have the maturity sum deposited immediately into his savings account after maturity. However, before then, he cannot withdraw the money.

Moreover, only the amount invested is tax-deductible, and he will have to pay tax on the income earned.

Who is eligible to invest in a tax-saving FD?

These entities can invest in a tax-saving fixed deposit:

  • Individuals
  • Hindu Undivided Family (HUF)
  • Minors with a parent/guardian

All public and private banks let you invest in tax-saving FDs.

Once you thoroughly understand tax-saving FDs and their interest rates, you can determine your returns with the help of a tax-saving calculator fixed deposit. It also aids in estimating the amount you would need to invest.

For the advantage of their customers, banks provide an online tax-saving calculator for fixed deposits.

To use it, enter information such as the principal amount, yearly interest rate, and tenure into a tax-saving calculator fixed deposit and receive your result.

If you want to open your tax-saving fixed deposits, select the best provider in the market, like RBL Bank’s tax-saving fixed deposits. It offers excellent interest rates and tax exemptions, making it a win-win situation.


A person’s age, risk tolerance, and time horizon are things to consider before making any investment choice.

If a person is close to retiring and has a low to zero tolerance for risk, a tax-saving FD is a wise investment. It offers assured returns and has less risk.

In addition, it is a great choice for those who need to reduce their tax obligations.

It is best to evaluate the interest rates on tax-saving FDs and select the one that best suits your needs.