Tax-Saver Fixed Deposits (FDs), Equity Linked Saving Schemes (ELSS), and the National Savings Certificate (NSC) are among the most popular tax-saving investment options under Section 80C of the Income Tax Act, 1961.
Assesses opting for the Old Tax Regime can claim deductions of up to Rs 1.50 lakh on these investments, making them an essential part of tax planning. Among these, bank FDs have been a preferred choice, particularly in recent years where FD interest rates nearly reached their peak.
The interest rate upcycle was largely influenced by the series of repo rate hikes by the Reserve Bank of India (RBI) between May 2022 and February 2023, resulting in a cumulative increase of 250 basis points.
Following this, the RBI maintained the policy repo rate at 6.50% until December 2024. As a result, many banks in India increased the interest rates on term deposits to attract investors.
However, in its February 2025 bi-monthly monetary policy meeting, the RBI decided to lower the repo rate by 25 basis points (bps) to 6.25%.
One of the primary reasons behind this decision was the easing of inflation.
India’s Consumer Price Index (CPI) inflation, also known as retail inflation, came down to 4.31% by January 2025 from its peak of 6.21% in October 2024 (which crossed RBI’s tolerance threshold of 4-6%). The decline is largely attributed to a fall in the ‘food and beverage inflation’, which has a weight of nearly 46% in the headline inflation.
Should inflation continue to ease and remain within the RBI’s target range of 4-6%, the central bank may consider another repo rate cut of 25 bps in the April 2025 bi-monthly monetary policy. If a further rate cut indeed transpires, banks are likely to respond by lowering FD interest rates, impacting returns for depositors.
This makes the present moment an opportune time for senior citizens/retirees and other risk-averse investors to invest money in tax-saver bank FDs (and other traditional interest-bearing investment avenues).
Let’s understand more about Tax-Saving Fixed Deposits.
What Are Tax-Saving Fixed Deposits?
A Tax-Saver Fixed Deposit or Tax-Saving Fixed Deposit is a type of FD account that offers tax benefits under Section 80C of the Income Tax Act.
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