Tax benefits of FDs

Synopsis 

• FDs (tax-saving ones) can be eligible for tax deductions under Section 80C of the Income Tax Act, 1961. 

• Tax-saving FDs have a mandatory 5-year lock-in period. 

• Interest over ₹50,000 (₹1 Lakh for senior citizens) is subject to TDS: 10% with PAN and 20% without PAN. 

Fixed Deposits (FDs) are a good way of saving money. The interest rate or the returns may not be high when compared to other savings instruments, but they are considered safe and also seen as a good way to claim tax deductions. 

As per the Income Tax Act of India 1961, provisions are available (subject to conditions) to taxpayers under Section 80C to seek deductions if they have FDs. However, the permitted amount is the total of all deductions allowed under this section and not on FDs alone. 

How Much 

As per the current tax laws, taxpayers with FDs can avail of tax benefits to a maximum of ₹1.5 Lakh a year from their gross taxable income. 

Conditions 

• Only individuals and Hindu Unified Families can invest in these tax-saving FDs. 

• FD investment can be through a public or private sector bank. 

• You can also seek tax benefits if you invest in a Post Office Time Deposit of five years. 

• A minimum amount is specified for the FD, the figure of which varies from bank to bank. Usually, it is a minimum investment of ₹100 with further investments in multiples of ₹100 only. 

• Tax-saving FDs have certain conditions like a lock-in period of five years and no premature withdrawals. 

• No loans can be drawn against these FDs. 

• A tax-saving FD can have joint holders but tax benefits will go to only the primary or first holder. 
  
  

When 

You can claim the tax benefits only during the financial year and not before. 

How 

You can submit supporting documents and relevant forms when you file your Income Tax returns for a particular financial year. 

TDS 

TDS (or tax-deducted-at-source) will be deducted on the interests accrued on the FDs. Per the Union Budget 2025, TDS on bank FDs will be applicable if the interest income exceeds: 

• ₹1 Lakh for senior citizens and 

• ₹50,000 in case of others.  

If you’re an Indian resident and submitted your PAN card details, then the deduction will be at 10% per year on the interest. Without a PAN card, the bank will deduct TDS at 20% per year.  

You can avoid TDS by submitting Form 15G declaring your ineligibility. Senior citizens have to submit Form 15H. 

Use the FD Interest Calculator and get details of the maturity amount and interest earned on deposits. 

*Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.