Five-Year Tax-Saving Fixed Deposit: Interest Rates, Investment Limits And Other Key Details
Section 80C of the Income Tax Act offers deduction of up to Rs 1.5 lakh from taxable income in a year. A variety of investments, such as premium paid towards life insurance and contribution to a Public Provident Fund (PPF) Account, are eligible for the income tax benefit offered under Section 80C. A special type of term deposit or fixed deposit (FD) is also eligible for deduction in taxable income under Section 80C. A five-year time-deposit small savings scheme account in the post office is also eligible for Section 80C benefits. (Also read: You need to furnish these additional details in new income tax return forms)
Here are five important things to know about the five-year term deposit or fixed deposit (FD) accounts which offer income tax benefits:
Income tax-saving FD: Interest rates
Major banks today - from state-run State Bank of India (SBI) to private sector peers HDFC Bank and ICICI Bank - pay the following interest rates on the five-year, tax-saving fixed deposits, according to their websites.
| Bank | Interest rate | |
|---|---|---|
| General public | Senior citizen | |
| State Bank of India | 6.85% | 7.35% |
| Punjab National Bank | 6.25% | 6.75% |
| India Post (five-year TD small savings scheme) | 7.80% | 7.80% |
| HDFC Bank | 7.25% | 7.75% |
| ICICI Bank | 7.25% | 7.75% |
| (Source: Bank, India Post websites) | ||
Income tax-saving FD: Premature withdrawal
Also known as a tax-saving fixed deposit or tax-saving FD, this account allows a minimum maturity period of five years and a maximum of 10 years. That means the deposit is locked-in for a period of five years.
Lenders do not allow a premature withdrawal from this type of FD accounts before completion of the lock-in period of five years.
Income tax-saving FD: Lock-in period
Investment in these fixed deposits - tax-saving FDs - is locked in for a period of five years from the date of issue, which means the investor cannot withdraw money during this period in order to utilize the tax benefit.
Income tax-saving FD: Investment limit
A maximum investment of Rs 1.5 lakh in a financial year is allowed in income tax-saver five-year fixed deposit.
SBI allows a minimum deposit of Rs 1,000 for investment in its tax-saving scheme, according to the bank's corporate sites - sbi.co.in. Any amount in the multiple of Rs 1,000 not exceeding Rs 1.5 lakh a year is allowed by the bank.