What is a Tax Saving Fixed Deposit?

How Can Tax Saving Fixed Deposits Help You Save on Taxes?

08 Dec 2025

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Find out what a Tax Saving FD is, its unique features and why should you invest in it.Key Takeaways

A Tax-Saving Fixed Deposit is a special type of FD offered by the Indian Government.

You can avail of tax deductions under section 80C of the Indian Income Tax Act, 2025 by investing in this FD.

The maximum amount you can invest is INR 1.5 lakhs per annum.

Tax Saving FDs come with a lock-in period of 5 years.

Tax-Saving Fixed Deposits combine the safety of traditional FDs with the advantage of tax benefits. They’re a preferred option for investors seeking stable returns similar to high savings account interest rates, while also reducing taxable income. This article explains how they work and what sets them apart from regular FDs.What is a Tax-Saving Fixed Deposit?A Tax-Saving Fixed Deposit (FD) is a type of bank deposit designed to help you save tax while earning fixed returns. It allows you to invest a lump sum amount for a lock-in period of five years at an assured interest rate. For example, if you invest INR 1 lakh in a Tax-Saving FD at 7% per annum, you’ll earn around INR 40,000 in interest over five years. It’s a secure and low-risk way to grow your money over time.How Does a Tax-Saving FD Work?When you invest in a Tax-Saving FD, your money remains locked in for five years, and you earn interest throughout this period. The amount invested qualifies for a tax deduction of up to ₹1.5 lakh under Section 80C of the Income Tax Act, 2025. However, the interest earned is taxable, and the bank may deduct TDS unless you submit Form 121 (In lieu of Form 15G or 15H), if eligible. You can choose to receive the interest at regular intervals or reinvest it for cumulative growth.Features of Tax-Saving Fixed DepositsThe following are some of the principal features of Tax-Saving FDs

The minimum amount you can deposit in a Tax-Saving FD is INR 5,000, whereas the maximum amount is INR 150,000 per annum.

The FD comes with a lock-in period of five years.

You can assign a nominee to this investment.

You can avail of monthly or quarterly payout on these FDs.

You cannot withdraw the FD prematurely or use the FDs to apply for loans.

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All Individuals and HUFs are eligible to invest in the Tax-Saving Fixed Deposit scheme.

You can invest in the FD individually or jointly with another adult. However, only the first holder can avail of the tax benefit.

Minors can also invest in this FD, but it should be a joint FD account with an adult.

Documents Required for Tax-Saving FDYou only need to provide a copy of your ID and address proof documents to open a Tax-Saving Fixed Deposit. These include:

A copy of identity proof – PAN card, Aadhaar, Voter ID card, Driving license, Passport, Government ID card, Senior Citizen Card, etc.

A copy of address proof – Aadhaar, Voter ID card, Driving license, Passport, Utility bills, etc.

Why invest in Tax Saving FDs?The following are some reasons why you should invest in a Tax-Saving FD.High returnsTax-Saving FD interest rates are relatively higher than many other tax-saving options, typically ranging between 5.5% and 7.75% per annum, offering a secure way to grow your savings.ConvenientYou can conveniently open this FD online with your bank or visit a post office to open it and make a one-time lump sum deposit. Additionally, you can flexibly invest anywhere from INR 5,000 to INR 1.5 Lakhs per annum.Tax savingsThe most attractive benefit of the Tax-Saving FD is that it comes under Section 80C instruments, on which you can avail fixed deposit income tax exemptions of INR 1,50,000. If you have not invested in any other tax-saving instrument, you can consider this.Risk-freeTax-Saving Fixed Deposits are risk-free as the principal amount is protected. You get both the principal investment amount and the interest amount when the FD matures.Low Minimum Deposit RequirementThe low minimum deposit requirement of tax-saving FDs is one of their main benefits. This opens them up to investors with tight budgets. Tax-saving FDs let you start investing with a smaller sum than other tax-saving instruments that could have higher minimum investment requirements.Joint Holding and Nomination FacilityYou can open a joint Tax-Saving Fixed Deposit, allowing two or more people to invest through a single account. This makes it convenient for couples or family members to save together. Additionally, you can nominate a beneficiary to receive the maturity amount in case of any unforeseen event, ensuring your savings remain secure for your loved ones.Things to Consider Before Investing in Tax Saving Fixed Deposit

Risk vs. Returns: With lower risk and moderate returns, these deposits offer more stability compared to equity investments. Always align your choice with your financial goals and risk tolerance.

Devise a Tax Strategy: Tax saving FD is just one of your options when it comes to tax planning. Examine additional choices such as PPF and ELSS in order to develop a comprehensive and varied tax-saving plan.

Tax Implications on Interest: Your income tax bracket will determine how much interest you pay on tax-saving FDs. Take the tax impact into account when figuring out your total returns.

Liquidity Considerations: Five years is the lock-in period for tax-saving FDs. Make sure you won't require the money you invested during this time.

Assess Your Financial Goals: Make sure the term of tax-saving FDs aligns with your investment horizon and financial objectives. If you require more potential returns or shorter-term liquidity, consider other investment options.

Fixed Deposit VariantsBanks offer different types of Fixed Deposits to suit various financial goals and liquidity needs. Common FD variants include:

Regular Fixed Deposit: Offers a fixed interest rate for a chosen tenure, ideal for stable returns.

Tax-Saving Fixed Deposit: Provides tax benefits under Section 80C with a mandatory five-year lock-in period.

Cumulative Fixed Deposit: Interest is compounded and paid at maturity, helping your savings grow faster.

Non-Cumulative Fixed Deposit: Interest is paid out monthly, quarterly, or annually, offering regular income.

Senior Citizen Fixed Deposit: Designed for individuals above 60 years, with higher interest rates and flexible payout options.

Sweep-in Fixed Deposit: Links your FD with your savings account, allowing automatic transfers for better liquidity and interest earnings.

Comparison with Other Tax-Saving InvestmentsBefore you invest, it’s important to know how Tax-Saving Fixed Deposits compare with other popular tax-saving options. The table below highlights key differences to help you choose the one that best matches your financial goals and risk appetite.

Investment Option	Lock-in Period	Returns (Approx.)	Risk Level	Tax Benefit (Sec. 80C)
Tax-Saving Fixed Deposit	5 years	5.5% – 7.75% p.a.	Low	Up to INR 1.5 lakh
Public Provident Fund (PPF)	15 years	7% – 8% p.a.	Low	Up to INR 1.5 lakh
National Savings Certificate (NSC)	5 years	6.8% p.a.	Low	Up to INR 1.5 lakh
Equity Linked Savings Scheme (ELSS)	3 years	Market-linked	High	Up to INR 1.5 lakh

Who Should Invest in a Tax Saving FD?Tax-saving FDs are suitable for individuals who:

Want to reduce their taxable income.

Have a moderate risk appetite.

Prefer a safe and secure investment option.

Need a regular stream of income (with monthly interest payout options).

Have a medium to long-term investment horizon (5 years).

How Much Should You Invest and What Will Be the Maturity Amount?The maximum amount you can invest in a tax-saving FD under Section 80C is Rs. 1.5 lakhs per financial year. The maturity amount of your FD will depend on the interest rate offered by the bank and the tenure you choose. You can use a tax – saving FD calculator to estimate your potential returns.

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ConclusionTax-Saving Deposit is an excellent investment option you should consider if you prefer to invest in safe investment instruments. With this investment, you can get tax savings benefits along with relatively high returns and a medium lock-in period. The fixed deposit tax exemption and high-interest rate make this instrument a risk-free and convenient investment option.If you prefer a quick and paperless way to start saving, open a digital account with DBS Bank today.Frequently Asked Questions (FAQs)

Is 5-year FD tax-free for 5 years?

No, there is no automatic tax exemption for a 5-year FD. Tax benefits are only available for tax-saving fixed deposits that are specifically created under Section 80C of the Income Tax Act.

Which FD is eligible for 80C?

There are tax advantages for fixed deposits that are designated as "Tax Saving FDs" or "Section 80C FDs." Usually, these FDs have a five-year lock-in duration.

Is 10-year FD taxable?

The taxability of a 10-year Fixed Deposit (FD) depends on whether it's a standard FD or a tax-saving FD. For a standard FD, the interest earned is taxable and will be added to your income, with taxes applied according to your income tax slab. However, if you invest in a tax-saving FD, the interest is tax-exempt up to a specified limit, offering you potential tax benefits while you grow your savings.

Open a DBS Bank Account Now *Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.