Who offers best tax benefit on deposits? Banks 5-year Tax saving FDs vs Post Office time deposits

Indubitably, it would be almost every taxpayer dream to never pay taxes. However, in the real world, every individual who has income and income from other sources is responsible for paying their taxes honestly. This is a very responsible practice and every individual should know that their contributions ensure the country keeps growing, as taxes we pay go into the government’s revenue kitty which helps in paying for development work. But, understanding the burden of taxes, the Income Tax department has always left a window open for taxpayers in claiming various deductions on their investment so that they can lessen their burden. Hence, it is very important that a taxpayer plans investment pattern in order to reduce their taxes. 

Among many schemes available in India for availing tax benefits, would also be tax saving fixed deposit schemes offered by banks. Majority of lenders are encouraging customers to opt for their popular 5-year tax saving fixed deposits which not only helps in earning interest but also brings down tax burden. However, there is also government-owned Post Office 5-year time deposit scheme which has gained popularity since the past few months. Therefore, choosing the right scheme is always advisable.

Let’s compare banks 5-year tax saving fixed deposit scheme with Post Office 5-year time deposit. 

ICICI Bank - For deposits below Rs 2 crore in 5-year tax saver FD scheme at this bank, will help earn an interest rate of 7.25% to general category. While the FD rate is higher for senior citizen at 7.75%. 

HDFC Bank - Just like ICICI, the private lender HDFC Bank also offers 7.25% interest rate to general category and 7.75% interest rate to senior citizen. Here, your interest will be calculated on a quarterly basis. The interest for re-investment is calculated every quarter, and the Principal is increased to include interest earned during the previous quarter. 

Punjab National Bank (PNB) -  The tax saving FD offers available at PNB is little different. General public can enjoy 6.25% interest for 5 years and above. While a senior citizen will get 6.75% for the same period. PNB also offers this scheme to their staff members with an interest rate of 7.25%, while the retired staff are also including in the plan earning similar rates for 5 years and above. One can begin this investment scheme at a minimum price of Rs 100. 

Bank of Baroda (BoB) - Here, a customer will enjoy 6.70% interest rates on their tax saving FDs for 5 years and above. Interest is compounded quarterly. 

Post Office 5-year Time Deposit - Just like other banks, this state-owned scheme also calculates interest on 5-year time deposit quarterly. Unlike above-mentioned banks, minimum investment value here is Rs 200 with no maximum limit. However, it would be the interest rate, that the scheme offers which is higher compared to banks. A 5-year time deposit helps a customer earn upto 7.8% interest rate. Meanwhile, there is a senior citizen saving account having a maturity period of 5 years, help depositors earn maximum 8.7% interest rates. 

Tax benefits!

It needs to be noted that, interest earned on banks tax saver FDs and Post office time deposit are subject to tax deducted at source (TDS). However, both offer a tax benefit of up to Rs 1.5 lakh under section 80C of Income Tax Act. 

In case of banks, a TDS gets deducted when interest payable or reinvested on FD per customer exceeds Rs 40,000 and in regards to senior citizen the eligibility is set at Rs 50,000 in a financial year. A TDS of 10% is deducted on interest income. However, if a depositor does not furnish details of their Permanent Account Number (PAN), then the TDS rate would rise to 20%. 

Meanwhile, interest paid by a post office also falls under the category of TDS. However,  the quantum of the deduction is not mentioned in regards to 5-year time deposit. If no TDS is deducted, still a taxpayer must furnish the details in Income Tax Return (ITR).  Meanwhile, in the senior citizen savings account, TDS is deducted if the interest income rises above Rs 10,000. 

From the above it can be said that, post office interest rates on deposits are much better than banks. However, tax benefit is higher from banks.