Tax saving FDs and its comparison with ELSS

In India, Fixed Deposits are  important as well as popular among investors. These are considered safe and can offer good interest rates. A Fixed Deposit is considered good for risk-averse investors and offers various interest rates depending on the tenure of the investment.

What is a Fixed Deposit?

Fixed Deposit is a financial instrument wherein an investor can invest a lump sum amount with a bank at an agreed rate of interest for a specified period of time(say from 7 days to 180 days). The amount can be invested for a period of 10 years. At the end of the tenure, the investor will receive the amount that was invested along with the interest.

What is a Tax Saving Fixed Deposit?

It is a type of Fixed Deposit which offers a tax deduction under section 80C of the Income Tax Act, 1961. The quantum of the deduction is dependent on the investment. Investors can save tax up to a maximum of Rs. 1,50,000. 

There is a minimum lockin period of 5 years for the investment made in Tax Saving Fixed Deposit and the interest earned is taxable as per the slab rate applicable.

To calculate the potential returns from this term deposit, one can use a fixed deposit calculator. The fixed deposit calculator is available online and is free to use.

One can investmen in tax saving FDs through offline and online modes. For offline investing, one can visit any bank and invest in these tax saving FDs. For online investing, one can use the internet banking facility.

Tax saving FDs do not have a premature withdrawal facility. Moreover, one cannot take a loan against fixed deposit account (bank tax saver fixed deposits).

How does a Fixed Deposit work?

Once investors invest in  bank fixed deposits, the amount gets locked-in for the specified period of time. An investor can earn interest on the invested amount on a cumulative basis.

There are multiple options for investment in a fixed deposit as these are available in various tenure.

Thus an investor can have one fixed deposit say for 90 days and another for 180 days. This helps in earning more interest and offers liquidity if required.

Which Banks offer Tax-Saving Fixed Deposit?

Below are a few tax saving bank fixed deposits and the interest rate offered by them:

Bank	FD Interest Rate
HDFC Bank	6.90%
Yes Bank	7.25%
Axis Bank	6.75%
ICICI Bank	7.00%
Bank of Baroda	6.25%
Lakshmi Vilas Bank	7.25%
Punjab National Bank	6.50%
State Bank of India	6.25%

Above fixed deposit rates are as on 31 Jan 2020

Fixed deposits offer higher returns than bank savings account. The investment in bank tax saver FDs qualify for tax exemption under Section 80C of the Income Tax Act. However, the interest earned on them is subject to tax as per individuals income tax slab rates. Moreover, the interest on tax saver fixed deposits is subject to TDS of 10% if the interest income exceeds INR 40,000 (INR 50,000 for senior citizens).

How to open a Bank Tax Saving Fixed Deposit (FD) in India

An investor can open a tax saver FD in the existing bank where he or she has an account, as well. Also, the investor can talk to the relationship manager or visit the respective bank’s website and initiate the process. 

An investor can invest in tax saver FD offered by a bank in which he does not hold an account. Here, the investor will have to complete your Know-your-customer(KYC) requirements. 

Below are a few documents that are required to complete your KYC for FD account : 

• Self-attested copies of your PAN card
• Identity proof (Aadhar Card, Pan Card, Passport etc.)
• Address proof(Aadhar Card, Driving License, Passport, etc) 
• Passport size photos

Once you complete the KYC requirements, you can easily start a tax-saving fixed deposit with that bank.

Comparison with ELSS

ELSS or Equity Linked Savings Scheme and tax saving fixed deposits are both good investment options but differ in terms of various aspects. Below is a table reflecting the differences between the same :

Particulars	Tax-saving FD	ELSS
Meaning	A type of deposit made with a bank wherein investors put a specified sum of money for a fixed tenure.	A category of mutual fund in which funds are invested in the equity market.
Returns	Fixed deposit rates are fixed by the bank	Dependent on the market conditions and returns vary as per the performance of the market.
Liquidity	Cannot be liquidated before the specified period of 5 years.	It cannot be liquidated before the specified period of 3 years.
Lockin period	5 years	3 years

What are different tax saving investments under Section 80C of the Income Tax Act?

Following are the different tax saving investments under Section 80C of the Income Tax Act.

• Bank Tax saving term deposit
• Life Insurance Premium
• Public Provident Fund
• Employee Provident Fund
• Equity Linked Savings Scheme (ELSS)
• Unit Linked Insurance Plan
• National Pension Scheme (NPS)
• Sukanya Samriddhi Yojana (SSY)
• Pradhan Mantri Awas Yojana
• Senior Citizen Saving Scheme (SCSS)

By investing in any of the above schemes, one can get a tax exemption up to INR 1,50,000. One can use a Scripbox’s income tax calculator to estimate their tax liability and check if there is scope to save tax.

What are the documents required to open a tax saving fixed deposit account?

One can invest in tax saving Fixed Deposit through online or offline mode. The documents required to open a tax saving fixed deposit account are:

• Tax saving Fixed Deposit application form
• 2 Passport Size Photographs
• Pan Card or Form No. 60 or 61 of the Income Tax Act
• Address proof as per KYC norms. (Aadhaar card, Telephone bill, Electricity bill, Bank Statement with cheque)
• Identity Proof as per KYC norms. (Aadhaar Card, Passport, Voter ID Card, ,PAN Card, Driving License)
• Senior Citizen ID Card (for senior citizens)