A fixed deposit is a term deposit offered by banks letting people collect fixed sums of money in fixed terms like 1 month, 6 months, every year or even 5 years. The interest rates on fixed deposits persist to be higher than that on a savings account. The FDs are further the safest mode of investments letting people grow their financial value of money with time. The interest rates deviate from bank to bank with the interest rates also depending on the tenure of the deposit.
The tenure can range from 7 days short to a 10-year long time period. There is numerous tax benefits too offered to the fixed deposit customers.
Features of Fixed Deposits Account
The principal purpose of this account is to earn highest interest rate with 0% risk on their investments. They tend to gain surplus funds on the amount invested today.
The amount is to be deposited only once. One has to open separate accounts for more deposits.
The depositor gets an FD receipts which he will have to show at the time of maturity. This deposit can also be renewed for a longer period.
The traditional scheme of fixed deposits credits the interest amount to the savings account of the deposits banks which may be on a monthly basis or quarterly basis. The interest is compounded quarterly in case of a reinvestment scheme.
Tax deducted at source (TDS) on FD is approved as per Income Tax Act 1961.
Tax saver fixed deposits
The amount collected as an FD is tax-free under section 80C of Income Tax Act 1961.
However, one requires locking money invested in these FDs for at least 5-year span. No premature withdrawal will be allowed. However, if encashed before maturity, no deductions will be offered.
The deduction amount cannot exceed 1.5 lakhs as per the law applicable from 13 November 2014. The minimum deposit should be ₹100.
The deductions can be claimed only on principle amount. Rest interests are taxable. TDS of 10% is charged on the interest earned during the year.
The interest rates are the same as applicable by your respective banks. They are usually similar for similar tenure. One has the option to either reinvest or compound or get a pay out the interest earned.
While the join holdings are concerned, the deduction is enjoyable only by the primary holder.
Make sure you present the fixed deposit receipt while claiming for deductions.