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Five-Year Fixed Deposit: Income Tax Benefits And Interest Rates Explained

Having thorough knowledge of one's Section 80C deductions determines whether he/she should opt for a five-year term for setting up an FD, sayexperts.

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Five-Year Fixed Deposit: Income Tax Benefits And Interest Rates Explained

Top banks pay interest rates ranging from 6.7% to 7.25% on five-year deposits up to Rs 1 crore

Have you fully utilised the income tax deduction of Rs 1.5 lakh available under Section 80C of the Income Tax Act? Section 80C provides for income tax deductions up to Rs 1.5 lakh in a financial year. That means you can deduct up to Rs 1.5 lakh from your taxable income in a year using the Section 80C provisions. Investments in a variety of tax-planning instruments such as five-year fixed deposit qualify for Section 80C benefits. Maturity proceeds from five-year fixed deposits, also known as tax-saving fixed deposits, are exempt from income tax. Having thorough knowledge of one's Section 80C deductions determines whether a person should opt for a five-year term for setting up a fixed deposit, say financial experts.

Who can get income tax benefit from a five-year fixed deposit?

The Section 80C ceiling of income tax deduction can be claimed against expenses such as life insurance premium, EPF (Employees' Provident Fund)/PPF (Public Provident Fund) contribution and contribution to a Sukanya Samriddhi account, among others. (Read: How to maximise income tax benefit under Section 80C)

"If the taxpayer has already utilized the said limit of Rs.1,50,000/- by way of other options, investment in the tax saving FD will not fetch any additional tax benefit," said Gopal Bohra, partner, N.A Shah Associates LLP.

State-run State Bank of India, and its private sector peers HDFC Bank and ICICI Bank pay interest rates ranging from 6.7 per cent to 7.25 per cent to the general public on five-year deposits up to Rs 1 crore. Here's a comparison of interest rates offered by top banks on fixed deposits with a maturity period up to five years:

State Bank of India (SBI)

PeriodInterest rate for general public
7 days to 45 days5.75%
46 days to 179 days6.25%
180 days to 210 days6.35%
211 days to less than 1 year6.40%
1 year to less than 2 year6.65%
2 years to less than 3 years6.65%
3 years to less than 5 years6.70%
(Source: sbi.co.in)

HDFC Bank

PeriodInterest rate for general public
7 - 14 days3.50%
15 - 29 days4.25%
30 - 45 days5.75%
46 - 60 days6.25%
61 - 90 days6.25%
91 days - 6 months6.25%
6 mnths 1 day- 6 mnths 3 days6.75%
6 mnths 4 days6.75%
6 mnths 5 days- 9 mnths6.75%
9 mnths 1 day- 9 mnths 3 days7.00%
9 mnths 4 days7.00%
9 months 5 days - 9 months 15 days7.00%
9 months 16 days7.00%
9 months 17 days < 1 Year7.00%
1 Year7.25%
1 year 1 day - 1 year 3 days7.25%
1 year 4 days7.25%
1 year 5 days - 1 Year 15 Days7.25%
1 Year 16 days7.25%
1 year 17 days - 2 Years7.25%
2 years 1day - 2 Years 15 days7.10%
2 Years 16 days7.10%
2 years 17 days - 3 Years7.10%
3 years 1day - 5 years7.10%
5 years (Tax Saving Fixed Deposit; maximum investment Rs 1.5 lakh)7.10%
(Source: hdfcbank.com)

ICICI Bank

PeriodInterest rate for general public
7 days to 14 days4%
15 days to 29 days4.25%
30 days to 45 days5.50%
46 days to 60 days5.75%
61 days to 90 days6%
91 days to 120 days6%
121 days to 184 days6%
185 days to 289 days6.50%
290 days to less than 1 year6.75%
1 year to 389 days6.75%
390 days to 2 years7%
2 years 1 day upto 5 years7.25%
5 Years Tax saver FD (up to Rs 1.5 lakh)7.25%
(Source: icicibank.com)

"If the taxpayer already utilized limit of Rs. 1.50 lakh then he can consider investing his surplus into regular fixed deposit so there will be no 5 year locking or can consider investing into mutual fund after consulting the investment advisor," adds Mr Bohra.

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