Month: March 2021

How interest income from fixed deposits is completely taxable?

Fixed Deposit interest income is entirely taxable. It will be added to your gross income and taxed at the slab rates that relate to your total income. The bank deducts this tax at the source as they credit the interest income to your account. If you have a three-year fixed deposit, the bank will subtract TDS at the end of each year. The TDS (that has been subtracted) will be measured against your total tax liability by the Income Tax Department. Include interest income in your gross income and owe tax on it even though no TDS is withheld. If you pause until your FD matures until receiving interest, your overall interest income will drive you into a tax bracket, allowing you to pay the additional tax. By looking at your Form 26AS, you can see the specifics of TDS deducted from all of your income. If any tax is due after including interest in your net income, you must submit it by March 31st, the end of the fiscal year. If you receive a great deal of money from interest, you may have to pay Advance Tax on a quarterly basis.

TDS on fixed deposits

The bank will not subtract any TDS if the gross interest income from all FDs with the bank is less than Rs 40,000 per year. In the instance of a senior citizen aged 60 and over, the cap is Rs 50,000. To learn more about TDS on fixed deposits, refer to the following points:

• From all of your FDs with the bank, the bank determines your annual interest income. If your interest income surpasses Rs 40,000 (Rs 50,000 for senior citizens) you will be subject to a 10% TDS deduction. If you do not submit your PAN number to the bank, they will subtract 20% TDS from your deposit. As a consequence, double-check that the bank has your PAN number or not.
• When the total income is less than the taxable limit, no TDS is deducted. When a person owes no tax, the bank is unable to subtract TDS. That being said, when you submit Form 15G or 15H to claim interest income without TDS, the bank will not subtract TDS.
• The best alternative to ensure that the Bank does not subtract TDS is to submit Form 15G and Form 15H to your respective bank. To prevent the inconvenience of additional TDS deduction and resulting refund from the IT Department, submit these forms at the beginning of every fiscal year.
• Senior citizens with interest income from fixed deposits, savings accounts, recurring deposits can claim tax deduction up to a limit of Rs 50,000 per annum. Hence, the bank will not subtract any TDS if the senior citizen’s interest income from all FD accounts with the bank is less than Rs 50,000 in a year.

Ways to avail tax benefits on FDs

The strategies for receiving income tax benefits and preventing TDS on FDs are described below.

Invest in tax-saving fixed deposits

A tax-saving fixed deposit is one in which you can deposit and claim a tax deduction under Section 80C. If a person opts for the old/existing tax regime, you can assert a tax benefit for contributions up to Rs 1.5 lakh in a financial year by participating in tax-saving fixed deposits under Section 80C of the Income-tax Act. For investments made in tax-saving fixed deposits, a person can claim a deduction of up to Rs 1,50,000 in a financial year (under the common Section 80C of the Income-Tax Act, 1961). To settle at net taxable income, the amount thus invested is withheld from gross taxable income. Premature withdrawals are not permissible on these deposits, which have a 5-year lock-in duration. Check the current interest rates on tax-saving FDs here.

Apply for a loan against FD

People obtain loans from a number of lenders while they are in a financial emergency. Obtaining loans against fixed deposits (FDs) from banks is just one of those options. This is a fast and simple way to get a short-term loan. Rather than unnecessarily withdrawing their FD, depositors can readily apply for a loan against their FD. A loan against FD (Fixed Deposit) is a form of secured loan in which customers pledge their fixed deposit as collateral in exchange for a loan. The loan balance is determined by the amount of the FD deposit. This can be somewhere between the deposit amount of 90% – 95%. Tax-saving fixed deposits can be kept in either a single or joint account, depending on the account holder’s choice. In the case of a joint account, though, the tax advantage can only be received by the first account holder. All fixed deposit holders, whether individuals or those with joint accounts are liable for a loan against their fixed deposits. This form of loan is not applicable to holders who have a 5-year tax-saving FD. Banks use the customer’s FD as security when granting a loan against a fixed deposit. As a result, the loan is now assured. Due to the fact that it is a secured loan, the interest rate is low. If the investor is unable to repay the loan, the bank can quickly recover the funds from the FD. This amount is usually determined at the date of maturity.

Invest in post office FD

Rather than going to a bank, you should make a Fixed Deposit at a Post Office branch. On Post Office Fixed Deposits, no TDS is withheld. If deposited in 5-year term deposits, depositors can claim up to Rs. 1,50,000 in tax benefits under Section 80C of the Income Tax Act, 1961. Interest rates on post office FDs are better than those available on the market. The current interest rate varies from 5.5 percent to 6.7 percent on tenure ranging from one to five years.

How to file Form 15G/Form 15H online?

Instead of submitting these forms to a bank branch, individuals can file it online. If your bank allows you to file Form 15G/H online through Net banking you can file Form 15G or Form 15H by following the below listed basic steps:

• Visit the net banking portal of your bank and sign in to your account using the required credentials i.e. User ID and Password.
• Head to the tax section and click on Form 15G/Form 15H
• Fill the form with all the required details and click on ‘Submit’
• Download the acknowledgement slip and note the service request number for potential use.

Investors barely have any good quality investment options. It’s extremely hard to generate returns from fixed interest yielding instruments, particularly fixed deposits. Currently, interest rate on good quality bank deposits are around 5.5 per cent, which barely covers inflation.

On the other hand, shares or equities have rallied so sharply, it is possible that they remain risky bets. In fact, price to earnings multiples for Nifty companies has exploded to 36 times, which defies any sense of logic. Real estate is illiquid and more of a long term strategy.

Against this backdrop, gold could remain a good bet, given that it has fallen around 20 per cent from peak levels.

Gold rates in Bangalore at the local jewellery (excluding GST and TCS)

Previous price	22 karats gold (per 10 grams)
Jan 5, 2021	Rs 48000
Feb 5, 2021	Rs 46500
March 5, 2021	Rs 41450
March 10, 2021	Rs 41810

From the above table we see that gold has fallen significantly over the last couple of months.

Reasons for the fall in gold prices

Among the major reasons for the fall in gold prices in India has been the government Budget proposal to reduce import duties on gold and silver to 7.5% from 12.5%. This was proposed in the Union Budget 2021-22 as announced by the Finance Minister.

However, a farm cess of 2.5% was added to customs duty. Despite that there has been a ner reduction of 2.5 per cent on the duty.

Among the other the reasons for the sharp fall in gold prices is the increase in yields of the US treasury. When bold yields rise, they tend to push gold prices lower.

Also, there are worries that economic recovery across the globe has led to a rally in commodity prices and hence inflation. When Inflation rises, it could lead to an increase in interest rates, which tends to push gold prices lower.

India imports a bulk of its gold requirements and hence any increase in international prices of gold, pushes prices of gold higher in the domestic markets as well.

Apart from the above two reasons, a slight strength in the Indian rupee has made imports of gold cheaper.

Should we buy gold now?

To be honest one of the biggest reasons to buy gold is a fall in the price of the commodity. Apart from this the other reason is that there are no other attractive investment options. Equities have run far ahead to merit any kind of investment and interest rates have collapsed as mentioned earlier.

This leaves investors with very limited options. While real estate is an opportunity, here again it not a liquid investment and is more of a long term option.

This leaves one with an investment option in gold. Apart from this, the precious metal is a good investment to divest ones investment.

At the moment gold prices range from Rs 41,000 to Rs 42,000 for 22 karats depending on the city, which is very lucrative. In fact, a dip below the levels of Rs 40,000 should be a good buying opportunity for investors. Once can look at options like gold futures and gold etfs as well. Investors can look at buying into various gold etfs like Nippon Gold ETF, SBI Gold ETF, UTI Gold Exchange Traded Fund etc. However, most of these tend to offer a more or less similar returns.

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