Invest in Fixed Deposits!
Fixed Deposits (FDs) are a popular choice of investment for anyone looking to grow their savings safely. They offer a sure way to earn interest, keeping your money secure. However, it's important to know the Fixed Deposit rules and regulations to make the most of your investment. This guide gives you a straightforward rundown of what you need to know, helping you make smart choices for your financial future with ease.
Key FD rules and regulations
Tax on FD interest
The interest income generated from your FD is subject to taxation under the Income Tax Act of 1961. This means that based on your total income for the financial year, the interest from FDs will be added to your income and taxed accordingly. The tax bracket you fall into will determine the rate at which your interest income is taxed, making it essential to factor in these considerations when estimating your returns from FD investments.
Exemption under section 80C
A standout feature is the eligibility for tax exemption under Section 80C of the I-T Act, 1961 for FDs with a tenure of five years or more. This allows investors to claim a deduction up to ₹1.5 lakh, thereby offering a dual advantage of earning interest while saving on taxes. However, it's critical to note that breaking the FD before its maturity will revoke this benefit.
Early withdrawal penalties
Fixed Deposits are designed to encourage savings for a predefined term, which means withdrawing funds before maturity often results in penalties. These penalties can vary significantly across different banks and financial institutions. It's advisable to closely review the specific terms and conditions related to early withdrawals before committing to an FD, ensuring you're fully aware of any financial implications.
Insurance cover for bank FDs
The safety of Fixed Deposits is further bolstered by the insurance cover provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), which protects deposits up to ₹5 lakh, including both principal and interest amounts. This insurance guarantees that your investment remains secure, offering peace of mind in the unlikely event of a bank failure.
Loan against FD
An often underutilised feature of Fixed Deposits is the ability to avail a loan against them, typically up to 80% of the deposit value. This option provides a flexible solution for accessing funds without having to break your FD, ensuring that your investment continues to earn interest even as you meet your immediate financial needs.
Axis Bank's Loan Against Fixed Deposit offers up to 85% of your FD value for cash needs without forfeiting your interest earnings or incurring penalties. With minimum loan amounts starting at ₹25,000, this option provides quick access to cash with competitive interest rates and no prepayment charges.
TDS on Fixed Deposits
The interest earned on FDs is subject to tax deducted at source (TDS) if it exceeds ₹40,000 (₹50,000 for senior citizens) in a financial year. However, if your total income is below the taxable threshold, you can submit Form 15G (or Form 15H for senior citizens) to prevent TDS deduction. Being proactive about submitting these forms can help in avoiding unnecessary tax deductions and ensuring your earnings are maximised.
Payment terms
Flexibility in interest payouts is another attractive feature of Fixed Deposits, allowing you to choose between receiving interest at maturity or at regular intervals (monthly, quarterly, etc.). This enables you to customise the investment to your financial needs, whether you're looking for a steady income or a lump sum payout.
Conclusion
Fixed Deposits stand out as a cornerstone of prudent financial planning, offering a blend of safety, predictability, and attractive returns. Armed with a thorough understanding of the FD rules and regulations, you're now better positioned to leverage these investments to their full potential, ensuring your hard-earned money not only grows but also provides you with financial security.
Also Read: Benefits of opening an FD without a Savings or Current Account
FAQs
1. Am I allowed to withdraw my Fixed Deposit at any time?
Yes, but it's important to note that early withdrawal from an FD usually incurs a penalty, affecting the overall interest you receive. Always consider this factor when planning to access your funds prematurely.
2. Are all Fixed Deposits risk-free?
While FDs are among the safest investment options, primarily due to the DICGC insurance covering up to ₹5 lakh, it's worth stating that corporate FDs may carry a higher risk compared to their bank counterparts. Always do a thorough research before investing.
3. Can I break a five-year tax-saver Fixed Deposit?
Tax-saver FDs, designed specifically for tax exemption under Section 80C, cannot be withdrawn before their five-year maturity period. This lock-in feature is integral to their tax-saving benefit, making them a commitment towards long-term savings.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
