Investing in fixed deposits gives the benefit of tax exemption under section 80C of the Income Tax Act. Under 80C, tax exemption can be claimed on investments up to Rs 1.5 lakh. Tax savings FD’s lock-in period is for 5 years and premature withdrawal is not allowed. Even though banks have reduced interest rates in the recent past, there are still some banks that are offering attractive interest rates on FDs.
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Small private banks are offering the highest interest rateSmall private banks are offering interest rates up to 6.75 per cent in tax savings FD. This interest rate is higher than many major public banks. DCB Bank and Yes Bank top the list with an interest rate of 6.75 percent. IndusInd Bank is third with a rate of 6.50 per cent.
AU Small Finance Bank and Ujjivan Small Finance Bank are offering tax savings FDs at the rate of 6.50 per cent and 5.80 per cent respectively. Small finance banks are offering FDs at a higher rate of interest than many major private banks. Foreign banks like DBS Bank and Deutsche Bank are also paying interest on tax savings FD up to 5.50 per cent.
This information has been collected from banks website till 27 January 2021 about interest rates.
Axis Bank, ICICI Bank and HDFC Bank are also offering interest on tax savings FD at the rate of 5.50 per cent, 5.35 per cent and 5.30 per cent respectively.
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If you look at the government banks, Union Bank of India is offering the highest interest rate on tax savings FD for 5 years. This bank is paying interest at the rate of 5.55 percent. After this, Canara Bank and State Bank of India are named, which are interest at the rate of 5.50 per cent and 5.40 per cent respectively. Bank of Baroda is also offering interest on such FDs at the rate of 5.25 per cent.
The FDB of Rs 1.5 lakh for 5 years in DCB Bank and Union Bank of India will increase to Rs 2.10 lakh and Rs 1.98 respectively.