Tax Saving Fixed Deposits (FDs) in India: A Complete Guide

Tax-saving fixed deposits (FDs) are one of the most popular and safest investment options for individuals looking to save taxes while earning stable returns. Under Section 80C of the Income Tax Act, investments in tax-saving FDs are eligible for deductions, providing a dual benefit of tax savings and guaranteed returns. In this guide, we’ll explore what tax-saving FDs are, their benefits, top options available in India, and how to choose the best one for your financial goals.

What is a Tax Saving Fixed Deposit?

A Tax Saving Fixed Deposit is a type of fixed deposit where you lock in your money for a period of 5 years to avail of tax deductions under Section 80C of the Income Tax Act, 1961. The amount invested in a tax-saving FD can reduce your taxable income, thus lowering your tax liability. This FD provides the security of principal along with fixed returns, making it a low-risk investment option.

Key Features of Tax Saving FDs:

Lock-in Period: A mandatory 5-year lock-in period, with no premature withdrawal.
Tax Benefits: Deduction of up to ₹1.5 lakh per year under Section 80C.
Interest Rate: Varies across banks but typically ranges from 5.5% to 7.5% per annum.
Interest Payment: Interest is paid out either monthly or quarterly, depending on the terms of the FD.
TDS (Tax Deducted at Source): Tax is deducted at source on the interest earned if it exceeds ₹40,000 in a financial year (₹50,000 for senior citizens).

Benefits of Tax Saving FDs

Tax Benefits: The primary advantage of investing in tax-saving FDs is the deduction of up to ₹1.5 lakh from your taxable income under Section 80C.
Safety: Tax-saving FDs are considered one of the safest investment options as they are backed by the government. Your principal is protected, and you will earn guaranteed returns.
Fixed Returns: Unlike market-linked investments, tax-saving FDs offer fixed returns, making them a reliable option for conservative investors.
Easy to Open and Manage: You can open a tax-saving FD easily at most banks, and it requires minimal documentation. The process is straightforward, and you can manage your FD through internet banking.
Interest Payment Options: You can choose to receive your interest monthly or quarterly, providing flexibility depending on your financial needs.

Top Tax Saving FDs in India for 2025

Here’s a list of some of the best tax-saving FDs offered by banks in India. These offer attractive interest rates and the benefit of tax deductions.

1. State Bank of India (SBI) Tax Saving FD

Interest Rate: 6.5% p.a. (for general public)
Lock-In Period: 5 years
Eligibility: Open to all Indian citizens, including NRIs
Why Choose This Plan?
SBI is one of the most trusted names in banking in India. With competitive interest rates and a nationwide presence, SBI’s tax-saving FD is an excellent option for conservative investors.

2. HDFC Bank Tax Saving FD

Interest Rate: 7.00% p.a. (for general public)
Lock-In Period: 5 years
Eligibility: Open to individuals, Hindu Undivided Families (HUF)
Why Choose This Plan?
HDFC Bank offers one of the best interest rates for tax-saving FDs, along with a strong reputation for customer service and reliability.

3. ICICI Bank Tax Saving FD

Interest Rate: 6.5% p.a. (for general public)
Lock-In Period: 5 years
Eligibility: Open to all Indian residents
Why Choose This Plan?
ICICI Bank offers flexible options for interest payouts and a convenient online process to open and manage your FD.

4. Axis Bank Tax Saving FD

Interest Rate: 6.25% p.a. (for general public)
Lock-In Period: 5 years
Eligibility: Open to all Indian citizens
Why Choose This Plan?
Axis Bank offers a simple process for opening a tax-saving FD, and their interest rates are competitive within the market. They also have a strong presence in both urban and rural areas.

5. Punjab National Bank (PNB) Tax Saving FD

Interest Rate: 6.75% p.a. (for general public)
Lock-In Period: 5 years
Eligibility: Open to Indian residents and NRIs
Why Choose This Plan?
PNB offers a high interest rate along with the security of a government-backed bank, making it a great choice for investors seeking both safety and returns.

How to Choose the Best Tax Saving FD

When choosing the best tax-saving FD, you should consider the following factors:

Interest Rate: Look for banks offering higher interest rates. A higher rate means more returns on your investment. Compare interest rates before making a decision.
Bank Reputation: Choose a reliable and trusted bank. Government-backed banks like SBI and PNB are safer options.
Customer Service: Check reviews regarding the bank’s customer service, especially if you prefer handling transactions online or have specific queries about your FD.
Interest Payout Options: Some banks offer monthly or quarterly interest payouts, which can be useful if you need regular income from your investment.
TDS on Interest: If you expect to earn a substantial amount in interest, check the TDS provisions. For seniors, some banks offer tax-saving FDs with higher interest rates and tax benefits.

Tax Implications on Tax Saving FDs

While tax-saving FDs offer a deduction under Section 80C, it’s important to understand the tax treatment of the interest earned:

Interest Taxability: The interest earned on tax-saving FDs is taxable. For individuals in the 10%, 20%, or 30% tax brackets, the interest is added to their total income and taxed accordingly.
TDS (Tax Deducted at Source): If your interest income exceeds ₹40,000 (₹50,000 for senior citizens), the bank will deduct tax at source. You can claim a refund when filing your income tax return if your total taxable income is lower than the taxable limit.
Tax Deduction at Source (TDS): Banks will deduct tax at source on the interest earned if it exceeds ₹40,000 in a year (₹50,000 for senior citizens). It’s essential to factor in this TDS while calculating your overall returns.

FAQs about Tax Saving FDs

Q1. Can I withdraw my Tax Saving FD before 5 years?

No, tax-saving FDs come with a lock-in period of 5 years. You cannot withdraw the principal amount before that unless you are willing to forgo the tax benefits.

Q2. Can I make a partial withdrawal from a Tax Saving FD?

No, tax-saving FDs do not allow partial withdrawals during the lock-in period. However, after 5 years, you can redeem the FD.

Q3. Is the interest on Tax Saving FD taxable?

Yes, the interest earned on tax-saving FDs is subject to tax according to your income tax slab.

Q4. Can NRIs invest in Tax Saving FDs?

Yes, NRIs can invest in tax-saving FDs, but the tax benefits available under Section 80C may not be applicable for them.

Conclusion

Tax-saving FDs offer a safe and reliable investment option for individuals seeking to save taxes while earning guaranteed returns. With a fixed interest rate and the benefit of tax deductions under Section 80C, these FDs are ideal for risk-averse investors. Before choosing the best tax-saving FD, compare the interest rates, eligibility, and bank reputation to make an informed decision.

Invest in a tax-saving FD today and secure your financial future while saving taxes!