Major lenders offer income tax benefits under a special type of fixed deposit (FD). This fixed deposit – also known as tax-saving fixed deposit or tax-saving FD – allows a minimum maturity period of five years and a maximum of 10 years. The investor can claim deduction of taxable income under Section 80C of the Income Tax Act under this category of bank fixed deposit. Banks do not allow a premature withdrawal from such an FD account before completion of five years from the date of issue. In other words, in order to take the income tax benefit, the investor is required to commit to a lock-in period of five years.
Top banks, from state-run State Bank of India (SBI) and Punjab National Bank (PNB) to private sector peers HDFC Bank and ICICI Bank, provide interest rates (or return on investment) to the tune of 6.25-7.75 per cent per annum on income tax-saving five-year fixed deposits up to Rs. 1 crore.
Here’s a comparison of interest rates offered by top banks to the general public and senior citizens on income tax-saving five-year FDs up to Rs. 1 crore:
|General public||Senior citizen|
|State Bank of India||6.85%||7.35%|
|Punjab National Bank||6.25%||6.75%|
State Bank of India (SBI)
SBI pays interest at the rate of 6.85-7.35 per cent on fixed deposits of a minimum term of 5 years and maximum 10 years under its tax savings scheme, SBI Tax Savings Scheme, according to the bank’s website – sbi.co.in. While the interest rate of 6.85 per cent is applicable to the general public, the interest rate of 7.35 is for senior citizens. The minimum amount allowed on an SBI tax-savings fixed deposit account is Rs. 1,000 and in multiples of Rs.1,000, and a maximum of Rs. 1.5 lakh a year, according to its website.
Punjab National Bank (PNB)
To the general public, PNB pays an interest rate of 6.25 per cent on five-year tax-saving fixed deposits up to Rs. 1 crore. Investment in tax-saving FDs at Punjab National Bank fetches interest at the rate of 6.75 per cent to senior citizens, according to the lender’s website – pnbindia.in. The investor can deposit a minimum of Rs. 100 and in multiples thereof, up to Rs. 1.5 lakh per financial year in this account.
ICICI Bank offers interest at the rate of 7.25 per cent to the general public, and 7.75 per cent to senior citizens on deposits in five-year tax-saving fixed deposits, according to its website – icicibank.com.
HDFC Bank pays interest at the rate of 7.25 per cent to the general public and 7.75 per cent to senior citizens, on five-year tax-saving fixed deposit up to Rs. 1 crore, according to the lender’s website – hdfcbank.com. The depositor can invest a minimum of Rs. 100 and amounts in the multiple of Rs. 100 up to Rs. 1.5 lakh in a financial year.
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.