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Fixed Deposit (FD)
Fixed Deposits are one of the traditional forms of investing. It comes with pre-determined assured returns for the given tenure.
Apart from banks, Fd’s are offered by Non-Banking Finance Companies (NBFCS), Manufacturing companies, Housing finance companies and other govt and private enterprises.
Company fixed deposits offer higher returns than banks.
They are best suitable for people with no tax liability and for people who fall under lower tax brackets.
Unlike bank Fd’s they do not fall under Deposit insurance and Credit Guarantee (DICGC) scheme which covers depositors upto 5 lakhs per bank.
It is prudent to stick to reputed companies with good corporate governance at the cost of earning lesser interest.
Once can choose to Invest a small percentage of portfolio in such FD’s as part of diversification.
Benefits
- Customers can borrow up to 80 to 90 percent of the value of their FDs. The loan interest rate could be 1 to 2 percent higher than the deposit rate.
- Indian residents can open these accounts for a minimum of seven days.
- Customers who invest in a fixed deposit earn a higher interest rate than those who deposit money in a savings account.
- Tax saving fixed deposits are fixed deposits that allow the investor to save tax under Section 80C of the Income Tax Act.
Taxability
In India, banks deduct tax on FDs at the source if the interest paid to a customer at any bank exceeds 10,000 in a fiscal year. This applies to both interest payable and interest reinvested per customer. This is known as tax deducted at source, and it is currently set at 10% of the interest. CBS banks can tally a customer’s FD holdings across many branches, and TDS is applied if interest reaches ₹10,000. Every quarter, banks send Form 16 A to customers as a receipt for Tax Deducted at Source.
However, the tax on interest from fixed deposits is not 10%; it is based on the depositor’s tax bracket. If any tax is required on Fixed Deposit interest after TDS, the holder must disclose it in Income Tax returns and pay it personally.
If the entire income for the year does not fall below the overall taxable limitations, customers can avoid TDS by submitting a Form 15 G (below 60 years of age) or Form 15 H (over 60 years of age) to the bank when opening the FD and at the beginning of each fiscal year.