Tax-saving FD: 5 banks offering above 7.50% to senior citizens; check details

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Fixed deposits that offer tax benefits to the depositor are known as tax-saving fixed deposits. Interest rates on tax-saving fixed deposits vary from one bank to another. Interest rates on tax-saving FDs have gone up recently as a result of numerous banks raising their fixed deposit interest rates following RBI’s repo rate hike. Several banks offer higher interest rates to senior citizens even on tax-saving fixed deposits. Here is a comparison of banks offering the best interest rates on tax-saving FDs.

Tax saving FD: Minimum investment and tenure
The minimum deposit requirement for tax-saving fixed deposits, however, varies from bank to bank. The tax-saving fixed-deposit lock-in period spans from five to ten years.

Also read: RBI repo rate hike: Long term FD interest rates are yet to peak; should you invest now?

Tax saving FD interest rates
Tax-saving FDs are the most suitable choice for those senior citizens who want to save tax via comparatively less-risky investments. Here is a list of banks offering the best interest rates on tax-saving FDs to senior citizens.

Bank Name Interest rate of tax-saving FDs
DCB Bank 8.10%
Axis Bank 7.75%
IndusInd Bank 7.75%
AU Small Finance Bank 7.70%
HDFC Bank 7.50%

Source: Compiled by ETIG; interest rates as on March 2, 2023

Tax benefits
The depositor of tax-saving fixed deposits can claim a tax deduction of up to Rs 150,000 under section 80C of the Income-Tax Act, 1961. Both individuals and the Hindu Undivided Family (HUF) are eligible for a deduction under section 80C. This tax deduction is available to everyone, including NRIs and senior citizens. Note that the interest you receive from this fixed deposit is not deductible for tax purposes. The interest payment is subject to tax deducted at source (TDS) as per the prevailing Income Tax ACT.

According to the Kotak Mahindra Bank website, “The interest earned will be liable for taxation as per the tax bracket of the investor. Hence TDS will apply to the interest earned. On the other hand, you also have the option to avoid TDS by submitting Form 15G (or Form 15H for senior citizens) to the respective bank.”
You cannot avail loan on tax saving fixed deposit, unlike regular fixed deposits. Tax Saver Fixed Deposit interest is either reinvested or payable quarterly.

Premature withdrawal
This FD has a five-year lock-in term during which depositors are not permitted to withdraw funds prematurely. According to the PNB website, “Premature cancellation/part withdrawal before the lock of period five years is not allowed. However, in case of death of the depositor before the maturity of term deposit, levy of penalty would be exempted and nominee/legal heir will be allowed premature payment even before the lock-in-period as per rules.”

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