The government had introduced tax saving FDs as an eligible instrument for exemption under Section 80C. This comes with a mandatory lock in period of 5 years and any premature withdrawal is not permitted before that. These deposits are subject to a maximum investment of Rs.150,000 per year. Let us look at some of the tax saving fixed deposit interest rates offered by Indian banks. One more thing is to be remembered here. The interest rates of tax saving FDs are subject to change. Also the tax exemption is only on the deposit amount and the interest paid annually continues to be taxable at the normally rate applicable to bank FDs.
Tax saving Fixed Deposits offered by State Bank of India (SBI)
SBI offers tax saver fixed deposits with lock in period of five years. As in other cases, the investor can invest up to Rs 1,50,000 each year and claim benefits under Section 80C. SBI Tax Savings Scheme, 2006, offers 6.85% for general depositors and senior citizens get 0.50% additional rate of interest on tax saver fixed deposits. The minimum deposit allowed is Rs 1,000 and the maximum is Rs 1,50,000. In case you have an online SBI account, the tax saving FD account can be opened online itself.
Tax saving Fixed Deposits offered by HDFC Bank
HDFC Bank also offers a tax saving fixed deposit scheme with a lock-in period of five years on a monthly or quarterly payout basis. The bank offers 7.10% interest per annum to regular depositors and 7.60% to senior citizens. Depositors can start with a minimum of Rs 100 and invest up to a maximum of Rs 1,50,000. Deposits have to be in multiples of Rs 100.
Tax saving Fixed Deposits offered by Kotak Mahindra Bank
Kotak Mahindra Bank offers Tax Saving Fixed Deposit option where the depositor can earn good interest on his deposits and also save tax. The bank offers 6.50% interest rate on Tax Saving FDs for normal citizens and 50 basis points higher at 7.00% for senior citizens. The minimum investment is Rs 100 and depositors can deposit up to Rs 1,50,000 under this scheme in any financial year.
Tax saving Fixed Deposits offered by ICICI Bank
ICICI Bank offers two plans; the traditional plan that pays interest on a monthly or quarterly basis and the reinvestment plan that pays interest compounded quarterly and reinvested with the principal amount. The reinvestment plan takes care of your reinvestment risk, which the traditional plan does not look at. The bank allows the investor to make a minimum investment of Rs 10,000 and maximum of Rs 1,50,000 for duration of five years. Rate of interest is 7.25% per annum on a tax saver fixed deposit for ordinary individuals and 7.75% for senior citizens, above the age of 60.
Tax saving Fixed Deposits offered by Axis Bank
Axis Bank is currently offering two types of tax saver fixed deposits; quarterly compounding / reinvestment of interest and the quarterly payout of interest to the depositor. These fixed deposit schemes are for a lock in period of five years commencing from the date of receipt. Axis Bank offers an interest rate of 7.00% per annum for regular depositors and 7.50% for senior citizens above the age of 60. These investments are also subject to a maximum investment limit of Rs.150,000/- per annum.
Tax saving Fixed Deposits offered by IndusInd Bank
The IndusInd Tax Saving FD helps depositors to save taxes and earn more through their investments. IndusInd Bank offers 7.00% interest rate on this scheme for normal citizens and 50 basis points higher at 50% for senior citizens. Depositors can invest up to a maximum of Rs 1,50,000 under the Tax Saver FD scheme in any financial year.
Tax saving Fixed Deposits offered by Yes Bank
The Tax Saving FD interest rate offered by Yes Bank is 7.10% for regular citizens whereas senior citizens get 50 basis points higher at a rate of 7.60%. The interest on the deposit is paid either on a monthly basis or on a quarterly basis. In order to determine how much interest you will receive on your Tax Saving FD depending on the interest rate, tenure, and frequency of interest payments, use an FD calculator.
Investors can definitely at the Tax saving fixed deposits as a veritable option to save tax. However, be wary of the 5 year mandatory lock-in. Although, the banks did lobby for reducing the lock in to 3 years at par with ELSS, the Budget did not oblige. The effectively yield after considering the tax shield under Section 80C is above 10% in most cases.