When it comes to financial instruments, Fixed Deposits (FDs) are quite a popular investment. They can help save for the future while offering tax benefits as well. FD is a prudent investment with high returns. Whether you plan to invest for the short- or long-term, you can certainly consider FDs.
Listed below are frequently asked questions regarding FDs that can help you make a more informed decision the next time you plan an investment.
How does a Fixed Deposit account work?
You deposit a certain amount of money with a bank /non-banking institution for a fixed tenure and at a fixed rate of interest. You then receive interest on a monthly, quarterly or annual basis for this tenure. Once the tenure ends, the principal amount, along with the interest earned on it is returned to you.
What are the kinds of FDs available?
There are two kinds of Fixed Deposits:
Cumulative Fixed Deposit
Interest is compounded annually
You receive the interest at the time of maturity, along with your principal amount
The interest earned here is taxable. (10% if the interest amount is more than 10,000 in a year). Your tax liability also depends on the tax slab in which you fall.
Non-cumulative Fixed Deposit
You receive the interest on a monthly/quarterly/half-yearly/yearly basis, depending on your preference
How to calculate tax on fixed deposit interest income?
Any interest income you receive is added to your total income while filing Income Tax Returns. It is calculated yearly, regardless of when it is paid out. The TDS on fixed deposit is deducted if the total interest earned is over ₹10,000 per annum. Additionally, any TDS that has been deducted, will be adjusted against your final tax liability.
Also Read: Senior Citizen Savings Scheme (SCSS)
What is the minimum period for fixed deposits?
The tenure range depends on the type of investment; ranging from seven days to 10 years.
What is the minimum and maximum amounts you can invest in an FD?
The minimum amount can be as low as Rs. 10,000 or as high as Rs. 1 crore.
What is the approximate range of FD interest rate in India?
In India, banks FD interest rate can range from 5% to 9%. Fixed deposit interest rates and extra facilities vary from bank to bank. FD is an investment with a higher rate of interest than liquid debt funds and banks savings account, to name a few.
What is the fixed deposit rates in post office?
The interest rates offered by post office on fixed deposits vary from 6.9% per annum to 7.7% per annum based on the tenure of the deposit. Post office fixed deposit rate for senior citizens is 0.5% higher than the rate offered to other depositors for the same tenure.
How is the FD interest amount paid?
Interest is paid on a monthly, quarterly, half-yearly, yearly or maturity basis. It can be paid by two methods – either by cheque or through the Electronic Clearing System (ECS)
Can I withdraw FD money before maturity?
Yes. Either some part of the amount or the entire amount can be withdrawn by breaking the FD. However, if you close your FD in this situation, your bank may pay you 0.5% or 1% less, as a penalty for taking the money out before maturity.
What are the tax benefits associated with FD?
The interest that you receive on FDs are taxable. However, you can submit Form 15G (or 15H for senior citizens) to your bank to avoid paying tax on FDs. This condition only applies if you meet certain conditions such as:
Total taxable income is below zero
You are an HUF or individual
You must be an Indian national
Your total, annual interest income is lower than the minimum exemption limit for the year (Rs. 2.5 lakh, currently)
