Income Tax Taxation

All you need to know about Tax Saver Fixed Deposits

All you need to know about Tax Saver Fixed Deposits

A person can create a fixed deposit account from a period as low as 1 year to as high as 10 years but do you know that 5 year fixed deposit is unique and it offers tax-saving benefits. Your money may get locked up for 5 years, but it can be a profitable investment for taxpayers considering the tax-saving benefits. In this article, we shall discuss about tax saver fixed deposit in detail.

What is a Fixed Deposit Account?

A fixed deposit account is an investment instrument which is provided by banks wherein investors can deposit a lump sum amount for a specified period. The investors will get a fixed rate of interest, and it may be noted that the interest rate provided on fixed deposits are higher than that of a regular savings bank account.

After the specified period is over, investors can withdraw their investment. All scheduled commercial banks and some NBFCs offer the provision of fixed deposit accounts. Before investing in FDs offered by NBFCs or HFC, check ratings of such financial institution to ensure that the money you deposit remains safe.

How does a 5 year tax saver fixed deposit work?

This will work in the manner in which other general fixed deposit account[1] work where a lump-sum amount is invested for a fixed tenure. It is the safest investment option as the money is safely invested, and interest can be earned at a pre-determined rate.

The rate of interest would be low or high, just like any other non-tax saving FDs. Making investment in Fixed deposit will not adversely affect even if the market becomes unfavourable. But, you will not be able to withdraw your money at any time before maturity.

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Features of Tax saver Fixed Deposit

The following are some of the essential features of Tax saver FD:

  • With Tax saving fixed deposit, one can claim deduction (Section 80C) up to 1.5 lakh rupees in a financial year;
  • The interest income from this fixed deposit is taxable, and they can attract TDS provisions under Section 194A;
  • Credit facilities cannot be availed of by the investor, such as loans etc.;
  • The taxpayer will be unable to withdraw the amount prematurely from the tax-saving fixed deposit;
  • The interest rate shall be fixed on the date of creation of such fixed deposits and will remain the same throughout the 5 year period;
  • The interest rate shall vary from bank to bank;
  • Tax saving fixed deposit has a special feature of flexible interest pay-out, and one can reinvest the interest or select the monthly or quarterly interests payouts;
  • This tax saving FD can be held jointly or in a single name. It is worth mentioning here that the benefits of tax deduction shall be available only to the first account owner in case of joint account.

How to know if you should invest in 5-year Tax saver Fixed Deposit?

A 5 year Tax saving FD can be a suitable option for you if you:

How to know if you should invest in 5-year Tax saver Fixed Deposit?
  • Have a low or moderate risk

If you have low/moderate risk appetite, then you should consider investing in this FD, and if you desire to earn guaranteed returns, then also you can invest in this.

  • Can block funds for 5 years

When you invest in a 5 year tax saving FD, you cannot liquidate investments in between therefore, you should have funds at your disposal before you decide for 5 years tax saver fixed deposit investment. It will assist you in case of any emergency during the 5 year period.

  • Want tax benefits
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If you desire to invest in something with low risk and with assured returns and want to enjoy tax benefits, then 5 year tax saver FD can be the way forward for you.

Opening a tax saving fixed deposit account

One can open a 5 year tax saving fixed deposit account from the comfort of their home as the process is online. You can also compare interest rates offered by different banks on these deposits and also compare features of FD.

If you have an account with the bank, then you may create fixed deposit account through internet banking. If you want to open tax saving FD in a bank where you don’t have an account, then you are required to submit KYC documents such as ID proof, address proof to open an account. These documents should be submitted with an application form duly signed.


Assess yourself before making investments, if the investment you make is suitable for you or not. 5 year tax saver fixed deposit is distinct, and it offers tax-saving benefits. It can be beneficial for those with low or moderate risks.

Read our article:Tax saving Scheme under section 80C

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