Fixed deposits for tax savings: Here are a few options where you can invest before March 31 to minimise tax outgo

Tax savings options: As the financial year draws to a close, investors are keenly exploring last-minute tax saving options to maximise their deductions. Among the various instruments available, Tax Saving Fixed Deposits (FDs) have emerged as a popular choice. These FDs offer not only attractive interest rates but also the potential to reduce taxable income under Section 80C of the Income Tax Act, 1961. Investors can claim a deduction of up to Rs 1.50 lakh, though it is important to note that this applies only to the principal amount and not to the interest earned, which is taxable according to the investor’s slab rate.

In the landscape of secure investment options, Tax Saving FDs stand out for their dual benefits of tax savings and fixed returns. Tax Saving FDs require a commitment as they come with a five-year lock-in period, during which premature withdrawal is not permitted. This ensures that the investment remains intact, providing steady returns over time. While investors cannot avail loans or overdraft facilities against these FDs, this feature appeals to conservative investors who prioritise capital protection. Upon maturity, these FDs do not auto-renew, meaning investors need to reinvest manually if they wish to continue their investment.

Current interest rates for Tax Saving FDs vary across banks, with some offering rates as high as 7.40%. For instance, DCB Bank offers the top rate of 7.40%, followed closely by IndusInd Bank and Yes Bank at 7.25%. Federal Bank and RBL Bank both offer 7.10%, whereas Axis Bank and HDFC Bank provide a 7.00% return. However, larger banks like SBI and Kotak Mahindra offer slightly lower rates of 6.50% and 6.20%, respectively. These competitive rates make Tax Saving FDs a compelling choice for those seeking a balance between risk and return.

FD rates

As of March 19, 2025, tax-saving fixed deposits (FDS) offer interest rates ranging from 6.50% to 7.75% per annum, with some banks offering higher rates for senior citizens.

Banks and Interest Rates:
Axis Bank: 7.00% p.a. for general citizens, 7.75% p.a. for senior citizens. 
HDFC Bank: 7.00% p.a. for general citizens, 7.50% p.a. for senior citizens. 
ICICI Bank: 7.00% p.a. for general citizens, 7.50% p.a. for senior citizens. 
IDBI Bank: 6.50% p.a. for general citizens, 7.00% p.a. for senior citizens. 
RBL Bank: 7.10% p.a. for general citizens, 7.60% p.a. for senior citizens. 
SBI: 6.50% p.a. for general citizens, 7.50% p.a. for senior citizens. 
Federal Bank: 7.10% p.a. for general citizens, 7.60% p.a. for senior citizens. 
Indian Bank: 6.25% p.a. for general citizens, 6.75% p.a. for senior citizens.

Taxation of FDs

Despite the appeal of Tax Saving FDs, investors should be aware of the interest taxation implications. While the principal investment qualifies for tax deduction, the interest earned does not. Instead, interest income is added to the investor's total income and taxed accordingly. Banks deduct Tax Deducted at Source (TDS) on interest exceeding Rs 40,000 during a financial year, or Rs 50,000 for senior citizens. Investors can, however, claim a refund or adjust the TDS amount when filing their income tax returns if their overall tax liability is lower than the TDS deducted.

In comparison to other savings options like Public Provident Fund (PPF) and National Savings Certificate (NSC), which also offer tax benefits under Section 80C, FDs provide a fixed interest rate for the entire lock-in period. As the deadline of March 31, 2025, approaches, investors are urged to consider their options and lock in their investments to optimise tax savings while ensuring stability and consistent returns.