The interest earned on tax-saving FD is fully taxable. The interest amount gets added to the taxable income of the investor and is taxed as per the tax slab.
New Delhi: When it comes to claiming tax benefits on investments, investing in a fixed deposit scheme under the debt category is always widely favored by risk-averse investors not only to generate secure and guaranteed returns but also to enjoy tax benefits under section 80C. Investment made in specified bank fixed deposits for a tenure of five years qualify for income tax deduction under Section 80C of the Income Tax Act 1961.
To claim tax benefits up to Rs 1.5 lakh on fixed deposits, one needs to stay invested for 5 years of the lock-in period. meaning you can not make a premature withdrawal before the 5-year expiry.
Here are the best tax-saving fixed deposits in 2021 to invest in:
5-Year Tax Saving Fixed Deposits of Small Finance Banks:
Amid the current low-interest-rate regime of banks, small finance banks are still promising the best interest rates which are higher than leading private and public sector banks on both short-term and long-term deposits. By investing in a fixed deposit scheme of small finance banks one would not only get good returns, tax benefits but also their deposits will enjoy an insurance cover up to Rs 5 lakhs by DICGC.
Small Finance Bank Tax Saver FD rates:
Small finance banks with best interest rates on 5-year Tax-saving deposits of less than Rs 2 crore:
| Bank | Regular FD Rates | Senior Citizen FD Rates |
| Ujjivan Small Finance Bank | 6.75% | 7.25% |
| Jana Small Finance Bank | 6.50% | 7.00% |
| Equitas Small Finance Bank | 6.25% | 6.75% |
| Suryoday Small Finance Bank | 6.25% | 6.50% |
| Utkarsh Small Finance Bank | 6.00% | 6.50% |
Private Sector Bank Tax Saver FD rates:
Private sector banks offering better interest rates on tax-saving fixed deposits of less than Rs 2 crore:
| Bank | Regular FD Rates | Senior Citizen FD Rates |
| RBL Bank | 6.50% | 7.00% |
| DCB Bank | 6.50% | 7.00% |
| Yes Bank | 6.25% | 7.00% |
| IndusInd Bank | 6.00% | 6.50% |
| Karur Vysya Bank | 6.00% | 6.00% |
Public Sector Banks Tax Saver FD rates:
For a deposit amount of less than Rs 2 crore, here are the top Public Sector banks offering best rates:
| Bank | Regular FD Rates | Senior Citizen FD Rates |
| Union Bank | 5.50% | 6.00% |
| Canara Bank | 5.50% | 6.00% |
| State Bank of India | 5.30% | 5.80% |
| Punjab & Sind Bank | 5.30% | 5.80% |
| Bank of India | 5.15% | 5.65% |
Post Office Time Deposit:
Aside from bank FDs, small savings schemes are the most secure investment under the debt category. Among all the small savings schemes, the post office time deposit account functions like a fixed deposit of a bank where you can invest for a term of 1 year to 5 years. You can open a post office time deposit account at any post office by making an initial deposit of Rs 1,000 and in multiples of 100 with no upper limit.
Under Section 80C of the Income Tax Act, investments made under 5-year TD are tax exempt. The deposit amount along with the accumulated interest rate in this term deposit account is payable after 1 year, 2 years, 3 years, and 5 years from the date of account opening. Post office time deposit accounts fetch pay 5.5 percent interest on deposits of one to three years, and 6.7 percent on deposits of five years.
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