With interest rates almost at the peak, FDs are offering good returns of up to 10 � 11%. Financial advisor Satkam Divya guides us about the pros and cons of fixed deposits and their tax implications.
As debt instruments like Fixed Deposit (FDs) schemes have become more lucrative after cyclic increase in the policy rates by Reserve Bank of India (RBI), the investment in bank and corporate fixed deposits make a lot of sense, especially at this time. They are not only safe havens to park your money but also offering good returns of up to 10-11 per cent for 1-2 years. The interest rates are almost at the peak and there is a little hope of further increases.
Thanks to the inflation which is making mandatory requirement to increase the key policy rates. A steep increase in the key policy rates dent the huge liquidity enjoyed by the banks and they have to increase the interest rates to collect the money from the public.
The following table provides list of FD rates of banks:
* Senior citizens would fetch 0.25 ' 0.50% additional.
Bank Deposits Vs Company Deposits
Here, as we about bank and corporate Fixed Deposit schemes , it becomes important for us to know the difference between the two so that we can take the right decision as far as investment in FDs are concerned. The prime difference between the two is that though corporate FDs offer 2-3 per cent higher interest rate per annum, they are not as safe as bank FDs. Bank deposits are generally safe investments because FDs up to Rs 1 lakh are insured under the Deposit Insurance & Credit Guarantee Scheme of India.
Hence, it is important for us to ascertain the stability of the company, its track record of giving returns. To judge this, the simple way is to keep in mind the following points before investing in corporate FDs:
When you open a fixed deposit account in the bank, the interest paid will be taxable income and the banker will deduct the tax at source and pay you the remaining income to your account. This process is called as Tax Deduction at Source (TDS).
The interest income earned on any FD is taxable at the same tax slab as the customer is in. It will be added to his income in the year under the head 'Other Income'. However, if the interest earned on FD is more than Rs 10,000 annually, bank cut the TDS at the rate of 10 per cent. In this case, bank will also issue you a tax certificate, which you can show at the time of filing the income tax return. However, if you have not submitted the PAN number while opening the fixed deposit, 20% would be deducted as the TDS. On the other hand, if the total interest amount is up to Rs.10000, bank does not deduct tax on it.
If the person is above 60, he/she can submit the Form 15H to avoid this TDS.
One important point is that, these forms have to be submitted in each financial year to avoid the tax deduction. It is advisable to submit in the beginning of the year.
The NRI's, who earn interest on their NRO's account, are subject to 30% TDS.
A fixed deposit is best suited for those investors who want to invest a lump sum of money at a low risk and are comfortable committing it for a fixed period of time, and earn a rate of interest on the same.
- Satkam Divya
The author is the Business Head ' Rupeetalk.com
' Rupeetalk.com offers you to search, compare and apply for best deals on Home Loans , Personal Loans , Credit Cards , Demat Accounts and Car Loans from leading banks and NBFCs. Also read Expert Reviews , Case Studies , Articles , Guides and Tips on Personal Finance products.'
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