Introduction:
Fixed deposits are a popular investment option that offers a secure and steady way to grow your savings. In this blog post, we will delve into the advantages, disadvantages, tax benefits, and rates of interest associated with fixed deposits.
A fixed deposit (FD), also known as a term deposit, is a financial instrument offered by banks and financial institutions where you deposit a sum of money for a fixed period of time, typically ranging from a few months to several years, at a predetermined interest rate. During this period, the deposited amount earns interest, which is usually higher than the interest rates offered on regular savings accounts. The interest rate is fixed at the time of opening the FD and remains constant throughout the term. At the end of the term, you can withdraw the principal amount along with the accumulated interest. Fixed deposits are considered low-risk investments because they offer guaranteed returns and are typically insured by government deposit insurance schemes. However, they may have penalties for early withdrawal before the maturity date.
Rate of Interest on Fixed Deposit:
* Fixed deposit rates vary across banks and financial institutions.
* The rate of interest is determined based on factors such as deposit amount, tenure, and prevailing market conditions.
* Interest rates on fixed deposits are typically higher for longer tenures.
Tax on Fixed Deposit:
In India, interest earned from fixed deposits (FDs) is subject to taxation. The interest income is added to the individual’s total income and taxed according to their applicable income tax slab rate. Banks and financial institutions deduct Tax Deducted at Source (TDS) on interest earned from FDs if it exceeds a certain threshold, which is currently Rs. 40,000 for regular depositors and Rs. 50,000 for senior citizens in a financial year. If the total income of an individual falls below the taxable limit, they can submit Form 15G (for those below 60 years) or Form 15H (for senior citizens) to the bank to avoid TDS deduction. Additionally, it’s important to note that FDs held for less than 5 years are subject to premature withdrawal penalties and taxation.
Tax Deduction:
You can get tax deductions of up to ₹1, 50,000 under Section 80C of the Income Tax Act of 1961 for your investment in a fixed deposit. However, to qualify for Section 80c deduction, you need to choose a lock-in period of at least five years. Moreover, you are also required to register your PAN card with your bank