Understanding Eligibility Criteria and Tax Benefits of Tax-Saving FDs

by Akmal
Tax-Saving FD

Saving on taxes is a critical aspect of personal finance. Individuals have numerous options for building wealth while minimising tax burden. One of the safest investment alternatives is tax-saving fixed deposits (FDs). Investing in tax-saving fixed deposits (FDs) is a great way to save taxes and grow one’s wealth. These FDs offer complete protection for the invested amount, and returns are guaranteed.

However, understanding the eligibility criteria and fixed deposit tax exemption of tax-saving FDs is crucial before taking the plunge and opening an FD account. Let us take a deeper look at these aspects and the FD benefits so that you may decide for yourself whether or not a tax-saving FD is the best choice for you. 

What is a Tax-Saving FD?

Tax-saving fixed deposits are a type of fixed deposit that provides depositors with a fixed income along with a deduction of up to Rs. 1.5 lakh under Section 80C. Tax-saving FDs have a mandatory 5-year lock-in period, and, like other fixed deposits, they provide fixed returns during the course of the deposit. Tax-saving deposits do not, however, permit early or partial withdrawals, and no loan facilities are offered against them, in contrast to conventional fixed deposits. In a tax-saving FD, the maximum deposit in a financial year can be Rs. 1,50,000. 

Except for cooperative and rural banks, anyone can make tax-saving FD investments through any public or private bank. In addition, depositors can also add a nominee to a tax-saving FD, just like any other FD. 

Eligibility Criteria to Open a Tax-Saving FD

Opening a tax-saving fixed deposit is straightforward and can be done quickly once the person knows the eligibility criteria and documents required to open a tax-saving FD. Usually, different banks have different eligibility requirements, but the standard eligibility requirements remain the same. 

To open a tax-saving FD:

  • The depositor must be an Indian citizen and above 18 years. 
  • A HUF (Hindu undivided family) can also invest in a tax-saving FD. 

The documents required to open a tax-saving FD are: 

  • Identity proof: PAN, Aadhaar, Driving License, Voter ID, Passport, etc.
  • Address proof: Bank Statement with Cheque, Telephone/Electricity Bill, Aadhaar, Passport, etc. 

Tax-Saving FD Benefits

Tax-saving FDs offer a host of advantages to investors, a few of which include:

  • Tax-saving fixed deposits offer a higher potential for interest income than a savings account.
  • Investors can avail of fixed deposit tax exemption under Section 80C of the Income Tax Act on the initial deposit amount, with a maximum exemption limit of up to Rs. 1.5 lakhs. This makes tax-saving FDs an attractive option for both salaried individuals and business persons.
  • Tax-saving FDs have a short lock-in period of just five years, as compared to other tax-saving instruments, during which early withdrawals are not permitted.
  • Tax-saving FDs are a secure investment option as they are not influenced by market movements and are not subject to fluctuations in interest rates, unlike mutual funds and other market-related investment alternatives. 

Tax Benefits of Tax-Saving FDs

Tax-saving FDs are one of the tax-saving instruments where depositors can receive a fixed deposit tax exemption/deduction of Rs. 1.5 lakhs u/s 80C each financial year for the deposited amount. The tax-saving FD’s interest is not exempt from taxation; rather, it is taxed.

The interest received is taxable according to the investor’s tax bracket; hence TDS (tax deducted at source) is necessary. 

FD interest is paid monthly or quarterly or can be reinvested. By providing the bank with Form 15G (or Form 15H for senior persons), a depositor can avoid paying TDS on interest received. With no change in the taxation of interest income, TDS will apply to depositors only if the total interest received in a fiscal year exceeds Rs. 40,000. For senior citizens, it is Rs. 50,000.


Tax-saving FDs are a great choice for investors wishing to reduce their tax liability and receive a fixed interest rate. It is essential to keep in mind, though, that tax-saving FDs have a lock-in period, which prevents withdrawals before the maturity date.

Before investing in a tax-saving FD, people must carefully consider their financial objectives, risk tolerance, and tax-saving requirements. To make a wise investment choice, examining the interest rates provided by various banks and financial organisations is critical.

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