An FD is one of the most versatile investment options available to the people today. This deposit is completely flexible, in the sense you can decide the deposit amount as well as the tenure. The deposit is easy to open both online and offline and provides a safe way to invest funds for a lot of people. A fixed deposit is a fairly simple and standard investment to understand. Funds are locked in for the period of investment and an interest is paid in return. However, there are a few rules related to your FD account that you must know.
Here are 5 fixed deposit rules and regulations you must know:
Deposit insurance:
One of the reasons why a bank fixed deposit account is preferred by the people is the deposit insurance. Each deposit made in a bank is insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). The bank bears the cost of insuring these deposits. As a part of this, each depositor is insured up to Rs. 1 lakh by the DICGC. This amount will be payable in case the bank closes or ceases operations.
Tax on fixed deposit interest:
Fixed deposit interest is taxable under Income Tax. The bank is required to deduct tax at 10% if the total interest payable exceeds Rs. 10,000 in one year. This interest is clubbed for the depositor from all branches i.e if fixed deposit interest from 3 branches totals Rs. 8,500, then no tax will be deducted by the bank. If you don’t update your PAN card with the bank, then the bank will deduct tax at 20% on the interest amount.
Steps to prevent bank from deducting tax:
If your income is not exceeding the no tax limit for the year, then you can fill up form 15G/15H and submit it to the bank. These forms certify that your income is not taxable and the bank will not deduct tax. If you forget to fill up this form and submit it to the bank, tax will be deducted. However, you can claim a refund on this in your income tax return. Form 15H is for senior citizens whereas Form 15G is for other depositors.
Loan or overdraft against fixed deposit:
An FD account is also reliable because it is possible to take a loan or an overdraft against the fixed deposit account. The rate of interest on this is generally 1% more than the fixed deposit rate. This loan is generally given up to 90% of the fixed deposit amount. This keeps the fixed deposit operational and also gives a loan at a reasonable rate of interest.
Premature liquidation:
In case you need funds, it is possible to liquidate the fixed deposit prematurely. The principal amount and the interest earned on the FD account are credited to the respective savings account. However, a penalty of 1% is charged for liquidating the fixed deposit before time.
Here are 5 fixed deposit rules and regulations you must know:
Deposit insurance:
One of the reasons why a bank fixed deposit account is preferred by the people is the deposit insurance. Each deposit made in a bank is insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). The bank bears the cost of insuring these deposits. As a part of this, each depositor is insured up to Rs. 1 lakh by the DICGC. This amount will be payable in case the bank closes or ceases operations.
Tax on fixed deposit interest:
Fixed deposit interest is taxable under Income Tax. The bank is required to deduct tax at 10% if the total interest payable exceeds Rs. 10,000 in one year. This interest is clubbed for the depositor from all branches i.e if fixed deposit interest from 3 branches totals Rs. 8,500, then no tax will be deducted by the bank. If you don’t update your PAN card with the bank, then the bank will deduct tax at 20% on the interest amount.
Steps to prevent bank from deducting tax:
If your income is not exceeding the no tax limit for the year, then you can fill up form 15G/15H and submit it to the bank. These forms certify that your income is not taxable and the bank will not deduct tax. If you forget to fill up this form and submit it to the bank, tax will be deducted. However, you can claim a refund on this in your income tax return. Form 15H is for senior citizens whereas Form 15G is for other depositors.
Loan or overdraft against fixed deposit:
An FD account is also reliable because it is possible to take a loan or an overdraft against the fixed deposit account. The rate of interest on this is generally 1% more than the fixed deposit rate. This loan is generally given up to 90% of the fixed deposit amount. This keeps the fixed deposit operational and also gives a loan at a reasonable rate of interest.
Premature liquidation:
In case you need funds, it is possible to liquidate the fixed deposit prematurely. The principal amount and the interest earned on the FD account are credited to the respective savings account. However, a penalty of 1% is charged for liquidating the fixed deposit before time.
