A fixed deposit can be defined as a financial instrument which offers the depositors more noteworthy returns than the savings account. Fixed deposits might require the opening of a different savings account. Fixed Deposits offer market driving returns, and have an easy opening and support system. In the event that you invested into a tax saving fixed deposit, you can claim the sum contributed up to Rs 1.5 lakh as a deduction from your income, according to the Income-tax Act, 1961. The sum so contributed is to be deducted from net aggregate income to arrive at taxable income. This deduction is permitted under Section 80C of the Income Tax Act, 1961. Section 80C of the Act defines the limit of an investment for which deductions could be claimed. As of now, the limit is fixed at Rs 1.5 lakh. Tax-saving fixed deposit is one of the ways at present for investment to guarantee the tax savings under Section 80C of the Income Tax Act. Fixed deposits are one of the most secure financial investments that an Indian national can opt out for. This financial instrument means fixed deposits is today given by many banks. The fixed deposits are a decent investment towards saving taxes additionally; however, they have their own burdens also. Give us a chance to discover more about the FDs and talk about their advantages and disadvantages.
Advantages of the Fixed Deposit schemes
Easy Availability- The Fixed Deposit scheme is accessible to the public as well as private banks in India. You have the option to open the FD through net banking also. There is no compelling reason to go to the bank for opening FD in the event that you have the KYC also known as “Know Your Customer” conventions done at the bank.
Guaranteed Returns- FD offers more noteworthy returns than the saving account. The interest rate differs in the range of 7% to 8%. The interest gain of an FD differs with its tenure so that a long term FD accumulates better interest rates. The fixed deposit interest rate comparison is accessible on the web, will uncover to you which bank is offering the best rate of interest.
Tax Exemption-The first money related sum, which the contributor deposits in the FD, is absolved from taxation, under the Section 80C of the Income Tax Act. FDs are a broadly utilized as a tax-saving alternative by both salaried people and laborers, and the business people. The fixed deposit scheme offers an exemption of up to Rs 1.5 lakh, towards fixed deposits.
Partial withdrawal- Some of the bank offers the partial withdrawal facility and the balance which remains in fixed deposits get same interest as getting before the partial withdrawal.
Important things to know about Fixed Deposits
1. Investment in Fixed deposit scheme could be made only by individuals or Hindu Undivided Family (HUF).
2. Fixed deposit scheme of each bank is different they all have a different minimum amount which can be invested in their scheme.
3. Fixed deposits have a lock-in period of 5 years also known as a secure period. Prior to maturity of fixed deposits withdrawal is not allowed even you cannot opt for a loan against this Fixed Deposits.
4. A co-operative and rural bank does not allow you to invest in fixed deposit scheme but any individual or HUF can invest in these fixed deposit schemes via any public or private sector bank.
5. Even the investment made in the post office for the period of 5 years treated as an investment made in fixed deposit scheme and qualifies for the deduction under section 80(C) of the Income Tax Act, 1961.
6. Post office fixed deposits have a facility that they could be transferred from one post office to another.
7. Fixed deposit scheme also offers the facility to hold it as ‘Single’ or ‘Joint mode’. But one point must be kept in mind in case of the Joint holder the tax benefit is available only to the first holder.
8. Interest earned on this fixed scheme is taxable as they are treated as the income of the fixed deposit holder and if interest earned is more than 10 thousand then it is liable to be tax deducted at source (TDS) as per the applicability of FD holder’s tax bracket.
9. The Fixed Deposits scheme also provides nomination facility.
10. Each bank has a different rate of interest on the fixed deposit schemes but usually, they provide a higher rate of interest for tax saving fixed deposits to senior citizens as compared to non-senior citizens.