Bank Fixed Deposits

In fixed deposit an individual deposits certain amount to bank for a specified period of time and in returns get interest at specified percentage of deposited amount. Interest is calculated and paid monthly/quarterly or compounded quarterly and paid along with principal.

Features of Fixed Deposit
  • Interest rates are higher than normal savings account

 

  • Returns are assured as interest rate is specified at time of opening.

 

  • Fixed deposit can be created for period of 7 days to 10 years.

 

  • One can get loan or over-daft facility against fixed deposit.

Interest rate on fixed deposit based on
  • Period:Interest rate varies depending on amount and period selected.Deposits above 1 crore and for longer tenure get better interest rates.

 

  • Age:Senior citizens get higher interest rate than other individuals.Usually they get 0.5% higher rate.

 

  • Premature withdrawl facility:Fixed deposit without premature withdrawal facility get slightly higher interest rate as compared to ones with premature withdrawal.

Tax saving Fixed deposit

Tax exemption is available for fixed deposit under Section 80C of Income Tax Act, 1961

 

  • Exemption is available for max Rs 1,50,000.

 

  • Amount is locked in for 5 years and no premature withdrawal is allowed.

 

  • In case of joint holder, the tax exemption will be only available for first holder.

     

     

Taxation and TDS on Fixed Deposits
  • Interest from Fixed deposits is taxable and should be added to your annual income.

 

  • If interest amount in a financial year exceeds or is expected to exceed Rs 10,000, then bank will deduct 10% TDS (Tax deduction at source).

 

  • If you do not have tax able income, then you can submit a self-declaration in the prescribed Form 15G/ 15H to avoid deduction of TDS.

 

  • Form 15G is for individuals, while Form 15H is for senior citizens. If your yearly income exceeds the limit of tax free income slab as per income tax department then your form will not be accepted.

 

  • If PAN card is not submitted while opening FD,then 20% TDS will be deducted by bank.

 

  • Once TDS is deducted it cannot be reversed,but one can claim excess tax deduction while filling returns.

     

Pre-mature withdrawal

In case of premature withdrawal, the interest will be paid as per the rate applicable for the period for which money the deposit has remained with the bank. Additionally a penalty will be charged for premature withdrawal.