Saturday, September 9, 2017

Bank Fixed Deposits (FDs): 7 Rules You May Not Know

Despite falling interest rates, bank fixed deposits remain very popular with investors looking for a guaranteed return from their investments. From 7 days to 10 years, bank fixed deposits come with different maturity periods. Many banks offer the facility to open fixed deposits online as well as through phone banking. Premature withdrawals/closure of fixed deposits are subjected to applicable charges. Investors can earn interest monthly/quarterly/half-yearly or yearly basis according to their convenience. India's biggest lender SBI, for example, is offering 5.5 per cent interest on fixed deposits of tenure of 7-45 days. On deposits of 5-10 years, it is offering interest of 6.25 per cent.

Here are seven things you may not know about bank fixed deposits:

1) TDS factor: Interest on bank fixed deposit is fully taxable, which means interest income is added to your income and taxed according to the applicable tax slabs. Banks deduct TDS or tax deducted at source at the rate of 10 per cent on the interest earned, if the interest income for the year is more than Rs.10,000. If any refund is due, the taxpayer will have to file income tax return to claim it.

2) To prevent the bank from deducting TDS, depositors can submit Form 15G /15H with the bank. Form 15G/15H are self-declaration forms by an individual stating that his or her income is less than the taxable limit. If one fails to do so, the person will need to claim the tax refund by filing his/her income tax return. For those who come under tax slabs, here is a caution. Sandeep Sehgal, director of tax and regulatory at Ashok Maheshwary & Associates LLP, says: "It would be counterproductive for him/her to have no TDS deducted as advance tax provisions are applicable for other income and the person may not have paid adequate advance tax when these were due and will result in payment of interest along with taxes. If some amount is already paid as TDS, the person can save interest at least to that extent."

3) In case of joint fixed deposit holders, it is the first account holder against whose PAN, TDS is deducted. The tax liability is calculated on the first applicant's name only. The interest on deposits in joint names is paid to the first depositor.

4) Recurring deposits: From 2015, TDS provisions have also been made applicable on the interest earned on recurring deposits.

5) Clubbing of Interest Income: Interest earned from fixed deposit/recurring deposits is clubbed across all branches of a bank for the purpose of computing the total interest during the financial year and applicability of TDS.

6) Deposit Insurance: It is a protection cover that you get on your deposits in banks. It is provided by Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India (RBI). The premium is borne by the banks. In case of a bank failure, DICGC is liable to provide up to a maximum of Rs.1 lakh to each depositor for both principal and interest amount. Each depositor in a bank is insured up to a maximum of Rs.1 lakh for both principal and interest amount.

7) Loan/overdraft facility against fixed deposits: SBI, for example, offers loans/overdraft facility of up to 90 per cent of the principal deposit, according to the bank's website. The bank charges 1 per cent higher interest than that of the interest earned on the fixed deposit.

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