Updated: 1 September 2026

Tax Saving Fixed Deposit: 5-Year Bank FD Tax Deduction, Interest and TDS

A tax-saving fixed deposit is a special bank term deposit that qualifies for a tax deduction when the statutory conditions are met. It has a minimum five-year term, earns taxable interest and is subject to the rules of the notified tax-saving bank deposit scheme.

Current-law note: From 1 April 2026, the Income-tax Act, 2025 applies. The corresponding deduction is contained in section 123 read with Schedule XV. Schedule XV includes a term deposit for at least five years with a scheduled bank under a Central Government-notified scheme. The aggregate deduction under section 123 is capped at ₹1,50,000. The familiar section 80C terminology relates to the repealed Income-tax Act, 1961 and remains useful when referring to earlier periods and the historical Bank Term Deposit Scheme, 2006.
Lock-in / termAt least 5 years
Deduction ceilingUp to ₹1,50,000 within the overall statutory limit
InterestTaxable under applicable income-tax law
Loan / pledgeNot permitted against a qualifying tax-saving deposit

Tax Saving Fixed Deposit Features

  • It is a bank term deposit with a statutory minimum period of five years.
  • It must be placed with a scheduled bank and comply with the Central Government-notified scheme.
  • The qualifying investment can form part of the deduction of up to ₹1,50,000 under section 123 of the Income-tax Act, 2025, subject to the applicable tax regime and the overall ceiling for eligible payments and investments.
  • Interest rates are fixed by the bank for the relevant product and booking date. Rates can differ between banks and may change over time.
  • Many banks offer a higher deposit rate to eligible senior citizens, subject to the individual bank's terms.
  • The tax-saving deposit cannot be pledged to secure a loan or used as security for another asset during the prescribed period.
A tax-saving FD should not be confused with an ordinary fixed deposit. Ordinary FDs may offer different tenures, premature withdrawal or loan facilities, whereas a tax-saving deposit must satisfy the special statutory scheme.

Tax Deduction: Section 123 and the Former Section 80C

For tax years beginning on or after 1 April 2026, section 123 of the Income-tax Act, 2025 allows an individual or Hindu undivided family a deduction for qualifying sums listed in Schedule XV, subject to an aggregate ceiling of ₹1,50,000. Schedule XV specifically includes a term deposit for a fixed period of not less than five years with a scheduled bank under a scheme framed and notified by the Central Government.

For periods governed by the Income-tax Act, 1961, the corresponding provision was section 80C, under which the Bank Term Deposit Scheme, 2006 was notified for qualifying five-year scheduled-bank term deposits.

New tax regime: The tax-saving FD deduction is not available when income is computed under the new-regime provisions that disallow this category of deduction. Before investing only for tax saving, confirm which tax regime applies to you.

Tax on Interest and TDS

The principal investment may qualify for the specified deduction, but the interest earned on a tax-saving fixed deposit is generally taxable. TDS is a collection mechanism and does not by itself determine the final tax payable.

Issue Current position
Interest income Generally taxable according to the applicable provisions.
TDS threshold on bank interest ₹1,00,000 for a senior citizen and ₹50,000 for a person other than a senior citizen, subject to the applicable statutory conditions.
Senior-citizen interest deduction Section 153 of the Income-tax Act, 2025 provides, subject to its conditions, a deduction of interest up to ₹50,000 for a senior citizen on eligible deposits, including time deposits.

Who Can Invest?

The deduction provision applies to an individual or a Hindu undivided family (HUF), subject to the conditions of the notified deposit scheme and the tax law. Banks may prescribe operational requirements for single or joint holding in line with the scheme.

How to Open a Tax Saving Fixed Deposit

Ask a scheduled bank specifically for its tax-saving fixed deposit / tax-saving term deposit. Do not select an ordinary five-year FD unless the bank confirms that it is issued under the notified tax-saving scheme. The account may be opened through the bank's permitted branch or digital channel, subject to its procedures.

KYC and Documents

Identity and address verification are governed by applicable KYC requirements. The exact documents accepted can vary with the bank and customer category. PAN and officially valid KYC documents or permitted digital KYC methods may be required. Check the bank's current instructions before applying.

Minimum and Maximum Investment

The statutory tax deduction is limited to the overall qualifying ceiling of ₹1,50,000. A bank may prescribe its own minimum deposit amount. Depositing more than the tax-deduction ceiling does not increase the deduction beyond the statutory limit.

Premature Withdrawal, Loan and Pledge

A qualifying tax-saving term deposit is intended to remain invested for the prescribed five-year period. It cannot be pledged to secure a loan or used as security. Accordingly, the loan-against-FD facility commonly available on ordinary fixed deposits should not be represented as a feature of a tax-saving FD.

Transfer of the Deposit

A tax-saving FD should not be described as freely transferable from one bank to another. Any operational transfer between branches or changes in servicing arrangements are governed by the notified scheme and the issuing bank's procedures. The depositor should obtain confirmation from the bank before relying on any transfer facility.

Nomination Facility

Nomination can be available in accordance with the applicable banking and deposit rules. The depositor should record or update the nomination with the issuing bank and retain the acknowledgement.

Risk and Deposit Insurance

A bank fixed deposit should not be described as having "no risk". Eligible deposits with an insured bank are protected by the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to ₹5,00,000 per depositor per bank in the same right and same capacity, including principal and interest, subject to the deposit-insurance law and conditions.

Tax Saving FD for Senior Citizens

Senior citizens may use a qualifying tax-saving FD if otherwise eligible. Banks often offer an additional interest rate to senior citizens. Separately, section 153 of the Income-tax Act, 2025 provides a deduction of up to ₹50,000 on eligible deposit interest for a senior citizen, subject to the statutory conditions.

Official References

Income-tax Act, 2025 - Income Tax Department Former Section 80C - Income Tax Department Bank Term Deposit Scheme, 2006 - Income Tax Department DICGC Deposit Insurance FAQs RBI Master Directions, including KYC

Frequently Asked Questions

Is a five-year FD automatically a tax-saving FD?

No. It must satisfy the notified tax-saving bank term deposit scheme. Confirm that the bank is issuing the deposit specifically as a qualifying tax-saving FD.

Can I claim more than ₹1,50,000 by investing more?

No. The aggregate deduction under section 123 is capped at ₹1,50,000 for the qualifying payments and investments covered by that provision.

Is the interest tax-free?

No. Interest is generally taxable. Senior citizens may separately qualify for the deposit-interest deduction under section 153, subject to its conditions.

Can I take a loan against a tax-saving FD?

No. A qualifying tax-saving term deposit cannot be pledged to secure a loan or used as security for another asset during the statutory period.

Disclaimer: This page provides general information and is not personalised tax, investment or legal advice. Tax treatment depends on the law applicable to the relevant tax year, the taxpayer's chosen tax regime and individual facts. Interest rates and bank procedures can change; verify current product terms with the issuing bank and current tax provisions with the Income Tax Department.