Recently, one of the country’s largest lenders, the State Bank of India (SBI), increased the interest rates on all fixed deposit (FD) offerings, including tax-saving FDs. A tax-saving fixed deposit is a type of investment option through which a tax deduction of up to Rs.1.5 lakh can be claimed under section 80C of the Income Tax Act. People in India tend to go for such a type of option to save tax because it is a very safe type of investment with close to nil risk. In fact, FDs are becoming a popular choice among conservative investors in most cases.
So, what is a tax saver FD?
This is a type of investment tool through which a tax deduction can be claimed for Rs.1.5 lakh. This FD comes with a lock-in period of 5 years and no premature withdrawal can be made on this.
Opening such an FD us quite an easy process and can usually be done online. There is very less documentation required in a fixed deposit.
Interest rates on tax-saving term deposits
SBI revised its interest rates on March 28, 2018, and the present rate of interest on this type of deposit scheme is 6.75% p.a. This is 0.25% higher than the previous rate of interest, which was 6.50% p.a. Those who fall under the senior citizen category will get an additional interest rate of 0.50% p.a. This will make the interest rate for tax saving time deposits for senior citizens stand at 7.25% p.a.
On the other hand, HDFC Bank pays customers at the rate of 6.00% per annum for putting money in the 5-year tax saving scheme. Customers can choose to go for a number of interest payout options even in this type of term deposit option. Those who are 60 years and above will get interest at the rate of 6.50%, which is 0.50% more than what is paid for regular deposit holders.
If you invest money in an ICICI bank tax saving term deposit, you will gain at the rate of 6.50% per annum. Senior citizens will be paid 7.00% per annum.
When it comes to this type of time deposit scheme, there is almost no risk involved and the investor is guaranteed to get back the invested sum along with the interest earned upon completion of the maturity period. However, it is important to note here that TDS or what is referred to as Tax Deducted at Source, will be deducted from the interest that is earned if the total interest income gained in a financial year is more than Rs.10,000. For senior citizens, this limit was higher as it was revised in the recent Union budget. Therefore, TDS will only be deducted, if the interest earned on an FD is more than Rs.50,000 in a given financial year.
Another important point to keep in mind while applying for such a type of FD is that investors should always furnish PAN card details. If PAN card is not submitted to the bank, TDS will be deducted at a double rate, which is at 20%. Generally, if an investor earns more than the prescribed income limit, TDS will be deducted only at 10% if all PAN card details are furnished.
Highest interest rates
Now, let us take a look at what Axis Bank pays for these deposits. It can be seen here that this bank pays a comparatively higher rate of interest, which stands at 6.90% per annum for regular deposit holders and 7.40% per annum for senior citizens. DCB Bank on the other hand, pays interest at a lucrative rate of 7.20% per annum and 7.70% per annum for those who fall in the senior citizen bracket.
Lakshmi Vilas Bank (LVB) pays a much much higher rate of interest of 7.15% per annum for those who are below 60 years of age and 7.75% per annum for pensioners. This is a very competitive interest rate in the market.
RBL Bank on the other hand pays at the rate of 7.10% per annum, while senior citizens can get a much higher rate of interest, which stands at around 7.60% per annum. Another bank to take into consideration for high interest rates is DCB Bank, which pays at the rate of 7.20% per annum. While the bank pays a much higher rate of 7.70% per annum for pensioners.
There are also other Non Banking Financial Companies that pay a comparatively much much higher rate of interest. However, there is small element of risk associated when it comes to NBFCs when compared to traditional banks.
One another thing to know about a tax saver deposit is that there can be no premature withdrawal made at any point of time whatsoever. Also, it is important to note here that there can be no loan/overdraft facility that can be availed against this type of FD unlike the regular term deposit. Also, remember that the interest earned will be completely taxable if you earn more than the prescribed limit in a financial year. However, remember that the principal that you have invested is completely tax free.
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