Bank fixed deposits are one of the most common savings scheme open to an average investor. Fixed deposits also give a higher rate of interest than a savings bank account. The facilities vary from bank to bank. Some of the facilities offered by banks are overdraft (loan) facility on the amount deposited, premature withdrawal before maturity period (which involves a loss of interest) etc. Bank deposits are fairly safer because banks are subject to control of the Reserve Bank of India.
Bank deposits are fairly safe because banks are subject to control of the Reserve Bank of India (RBI) with regard to several policy and operational parameters. The banks are free to offer varying interests in fixed deposits of different maturities. Interest is compounded once a quarter, leading to a somewhat higher effective rate.
The minimum deposit amount varies with each bank. It can range from as low as Rs. 100 to an unlimited amount with some banks. Deposits can be made in multiples of Rs. 100/-.
Before opening a FD account, try to check the rates of interest for different banks for different periods. It is advisable to keep the amount in five or ten small deposits instead of making one big deposit. In case of any premature withdrawal of partial amount, then only one or two deposit need be prematurely encashed. The loss sustained in interest will, thus, be less than if one big deposit were to be encashed. Check deposit receipts carefully to see that all particulars have been properly and accurately filled in. The thing to consider before investing in an FD is the rate of interest and the inflation rate. A high inflation rate can simply chip away your real returns.
When do the bank deduct TDS on a fixed deposit?
If the total interest earned on all your fixed deposits in a bank is greater than Rs. 10,000 in a financial year, you are liable for TDS and the banks will deduct the income tax at source. The tax liability for the purpose of TDS is determined at the branch level. Even if a fixed deposit is in the name of a minor it will attract TDS and in this case the credit for TDS can be claimed by a person managing the minor’s income. Whenever the bank pays an interest on your fixed deposits, it checks it for TDS eligibility. If it qualifies, the TDS is deducted. TDS is also deducted on interest accrued (but not yet paid) at the end of the financial year viz. 31st March every year.
The rate at which TDS is deducted varies according to the category of account holders.
TDS rates for a fixed deposit held by resident individual and HUF
If the fixed deposit holder is a resident individual and HUF, for a payment of up to 10 lacs, TDS will be deducted at a rate of 10% in addition to it there is an education cess of 3% which takes the total deduction to 10.3%. For a fixed deposit of resident individual or HUF with payments equal to 10 lacs or more the TDS rate is 10%, in addition to it there is a surcharge of 10% and educational cess of 3% this takes the total deduction to 11.3%
TDS rates for a fixed deposit held by corporate body
If the fixed deposit holder corporate body, for a payment of up to 1 crore TDS will be deducted at a rate of 20% plus an education cess of 3% which takes the total deduction to 20.6%. For a fixed deposit of corporate body with payments equal to 1 crore or more the TDS rate is 20% in addition to it there is a surcharge of 10% and educational cess of 3% this takes the total deduction to 22.6%
Effect of change in fixed deposit portfolio on TDS
Any change or enhancement in fixed deposit portfolio affects the TDS liability. If your changed portfolio earns a interest which falls under the ambit of income tax laws, you will be liable for TDS on your current portfolio. In case the interest on your current portfolio is not sufficient enough to cover the TDS, it will be deducted from the principal amount.
The income tax authorities give direction to banks and financial institution issuing fixed deposits to deduct the income tax at source on fixed deposits if they qualify.
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