Best 5 Year Fixed Deposits in India (2019)

The Income Tax Department has covered various investments and saving schemes under Section 80C of the Income Tax Act, 1961. This is specifically designed to benefit the middle class in India. Popular schemes covered under Section 80C are EPF, PPF, NPS, NSC, ELSS, 5-year FD and so on.

If you have availed a home loan, then the principal paid on home loan is eligible for tax deductions under Section 80C. The total deductions allowed under Section 80C is Rs 1,50,000 a year. This is a collective deduction.

Investing in a bank FD (fixed deposit) is one of the most popular and safest investments in India. There are hardly any instances of banks defaulting on FDs. Considering this, the Income Tax Department has covered 5 year FD under Section 80C, benefitting several taxpayers and also encouraging people to invest in FDs. 

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What is a 5-Year Fixed Deposit?

A 5-year fixed deposit, also referred to as tax saving FD, is an investment covered under Section 80C of the Income Tax Act, 1961. It has a lock-in period of 5 years and earns an annual rate of interest which is much higher than that of a normal savings bank account.

Who Can Invest?

Any person, who wants to save tax, can invest in a 5 year FD. This includes Indian citizens, senior citizens, NRIs and HUFs.

Minimum and Maximum Investment Amount

The minimum investment in a 5 year FD varies across banks and NBFCs. The maximum amount eligible for tax deductions under Section 80C is Rs 1.5 Lakhs a year.

Interest Payments

Interest is compounded on a monthly, quarterly, bi-annually or annual basis. More the number of compounding higher would be the returns earned.

You can choose to receive interest either cumulatively or non-cumulatively. Under the cumulative option, the interest earned is reinvested to enhance the principal for the next compounding period.

Under the non-cumulative option, the interested earned at the end of each compounding period, is paid out to the investor.

Top 5 Tax-Saving Bank FD Rates

The table below shows the top 5 tax-saving bank FD rates:

Bank	Interest Rate
IDFC Bank	8.25%
Deutsche Bank	8.25%
Lakshmi Vilas Bank	7.75%
DCB Bank	7.75%
Ratnakar Bank Ltd.	7.60%

Top 5 Tax-Saving Bank FD Rates for Senior Citizens

The table below shows the top 5 tax-saving bank FD rates for senior citizens:

Bank	Interest Rate
IDFC Bank	8.75%
Deutsche Bank	8.25%
Lakshmi Vilas Bank	8.35%
DCB Bank	8.25%
Ratnakar Bank Ltd.	8.10%

Tenure of FD

As the name suggests, 5 year FDs have a lock in period of 5 years. Hence, there is no option of a premature withdrawal. The tenure ranges from 5 to 10 years.

Type of Holding

5 year tax saving FD accounts can be opened jointly with spouse. But, the tax benefits are extended only to the primary holder, while secondary holders do not enjoy any kind of benefits.

Taxation

The principal invested up to Rs 1.5 Lakhs a year, in a 5 year tax saving FD enjoys Section 80C benefits. The interest earned on tax saving FD is taxed and depends on the income tax slab you fall under. Tax deduction at source (TDS) is applicable. TDS is applicable at 10% if the interest earned exceeds Rs 40,000 a year. To avoid TDS, you must submit a self declaration and Form 15H/15G.

Nomination Facility

You have the option of nominating a beneficiary for tax saving FD account. If you die within the tenure of the 5 Year FD, then proceeds are handed over to the nominee or beneficiary.

Documents Needed to Open a Tax Saving FD Account

PAN Card is mandatory to open 5 year tax saver FDs, if not, then you have to fill Form 60. Apart from this, you must produce a Government recognized ID proof and address proof.

Government Recognized ID Proof:

• Aadhaar Card

• Valid Driving License

• Valid Passport

• Ration Card

• Voter ID Card

Government Recognized Address Proof

• Ration Card
• Telephone Bill
• Utility Bill
• Gas Bill
• Property Tax Assessment
• Proof of age for senior citizens
• Two latest passport size photographs

Key Highlights of Tax Saver FDs:

• 5 Year Tax saving fixed deposits have a lock-in period of 5 years.
• You can avail tax deductions of up to Rs 1,50,000 a year, under Section 80C of the Income Tax Act.
• Deduction is available to individuals, members of HUFs, senior citizens and NRIs.
• Interest earned on 5 year tax saver fixed deposits is taxable. TDS is applicable at 10% if the interest earned exceeds Rs 40,000 a year.
• The option of premature withdrawal is not available.
• Tax saver FDs can be opened singly or jointly. In case of a joint account, the tax benefits would be offered only to the primary holder and secondary holders don’t enjoy any tax benefits under Section 80C.                                      

Key Benefits of Tax Saver FD

• Tax deductions as per Section 80C of the Income Tax Act, 1961.
• Premature withdrawal is not allowed. Your funds would be safely parked in the account, earning interest.
• Senior citizens are offered a slightly higher rate of interest than the regular citizens.
• You can open joint accounts.

Conclusion

In the modern World of equity and mutual funds, FDs still remain one of the most popular and preferred investment options, as they offer guaranteed returns with almost no risk. It is extremely important to follow all the requisite steps for tax planning to avoid hefty taxes.

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