The latest FD rules and regulations you should know

  • Deposit
  • 1 Months ago

Written by - Shriram

A Fixed Deposit (FD) is one of the most popular types of investment because of its security of funds and assured returns. But there are rules and regulations you need to keep in mind the tax levied on an FD is called Tax Deducted at Source (TDS). The tax rate on your FD’s interest will be determined by the tax slab you fall under. Some financial institutions even offer insurance for the fixed deposit during its term.

Saving money through an FD is a secure option and an intelligent way to grow your finances. Knowing all the rules and regulations surrounding an FD can help you get the best benefits from the investment. Collecting a lump sum of money and putting it away in a bank or Non-Banking Financial Company (NBFC) is one of the easiest ways to start saving.

With a Shriram Finance FD, you can get higher and guaranteed returns, and a flexible tenure for your investment, and you will also have the option to close your FD in times of emergencies. You can also use the Shriram FD calculator to know the maturity amount for the tenure that you require. Here are some FD rules and regulations you have to keep in mind while investing in this scheme:

1. Tax Deduction at Source on FDs

The tax levied on FD interest is the Tax Deducted at Source (TDS), which the bank or NBFC will pay. You will receive or pay the difference if the bank/NBFC pays a surplus or deficit TDS on FD interest.

If the amount saved on your FD exceeds Rs 40,000, TDS is deducted at 10% if you provide your PAN information. If the information is unavailable, tax is levied at 20%.

TDS does not apply to Post Office Term Deposits. Individuals must declare the interest earned on the Post Office FD when filing their income tax returns. For senior citizens, no TDS is applicable if the interest on fixed deposit accounts exceeds Rs. 50,000.

2. Tax on FD interest

According to the governing laws in India, the interest earned on FD accounts are fully taxable. The interest amount with your FDs is clubbed with your total income and is taxed accordingly. The tax rates depend on the slab applicable to your total taxable income, as specified under the Income Tax Act.

For example, if your taxable income for the fiscal year 2019-2020 is Rs. 10 lakhs, then the amount you earn as interest on your fixed deposit will be taxed at 20%.

3. Insurance

Being one of the most secure investment options, FDs have very few risks. One of these risks is that an individual may lose their deposit if the bank suffers a collapse.

Fortunately, several banks and NBFCs offer insurance of up to a maximum amount of Rs. 5,00,000 for both principal and the interest amount held by them. This insurance cover is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC). In the case of a bank collapse, this insurance is the only respite for individuals investing in the bank or NBFC.

4. Loan facility on an FD

Some banks and NBFCs offer loans against FDs. This sort of loan is usually in the form of an overdraft facility. The amount extended for a loan depends on deposit size and tenure. You can choose the term of your loan if it falls within the duration of your fixed deposit. Pre-mature withdrawal of your limited deposit amount will not be possible.

5. Penalty on early withdrawals

This FD rule is quite popular and may sometimes be why a person avoids investing in a fixed deposit. You can easily withdraw your FD amount in the case of an emergency, but premature withdrawal usually incurs a penalty. The penalty amount usually depends on the bank or NBFC in which you have deposited your money.

The penalty may cause you to lose a significant portion or all of the interest amount you were supposed to receive on maturity. This is why you should avoid breaking your FD before the maturity day.

Conclusion

Now that you know the rules, you can open a secure FD to save for future goals. This investment scheme comes with a pre-fixed interest rate which is usually 0.5% higher for senior citizens. Keeping updated with the latest FD interest rates of your preferred banks and NBFCs can help you make the best investments.

You can easily open the Shriram fixed deposit and avail of the best interest rates across top-ranking banks and NBFCs. After the deposit has matured, you can also get the additional interest of 0.25% per annum on all renewals.

FAQs

What happens to FD after maturity?

After maturity, the fixed deposit amount along with interest is added to your bank or NBFC savings account. According to your requirements, you can either use the amount or re-invest it into an FD to earn more interest over time.

What is the limitation of a fixed deposit?

Although an FD can be readily withdrawn, the penalty can be considered one of the limitations of investing in this scheme.

Can we withdraw money from a fixed deposit before maturity?

You can’t withdraw a portion of the amount deposited. If you require the amount in the deposit for an emergency, you can prematurely withdraw the amount, but a penalty will be levied on your FD.

What is the minimum period for a fixed deposit?

You can invest in an FD for a minimum period of seven days. This period may vary according to the bank or NBFC of your choice.

Is an FD tax-free?

A fixed deposit can be tax-free if an individual wants to invest in a tax-saving FD with a five-year tenure. A regular FD is taxable according to the governing laws in India.

Key Highlights:

  • The tax levied on FD interest is the Tax Deducted at Source.
  • The tax rate on your FD’s interest depends on the tax slab you fall under.
  • Depending on the financial institution you are investing in, you may be able to get insurance on your FD.
  • You can avail of a loan against an FD.