Category: Personal Finance

Stand Up India Scheme: Who Can Avail Loan Under This Scheme?

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Planning

oi-Sneha Kulkarni

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Under the Stand Up India programme, the government has allocated Rs 25,586 crore to provide easy funding to Dalit and female entrepreneurs. There is a massive group of potential entrepreneurs, particularly women and Scheduled Caste (SC) and Scheduled Tribes (ST) people, who want to start their own business that will allow them to grow and thrive. Such entrepreneurs can be found all over the country, and they are brimming with ideas for what they can do for themselves and their families.

Ambitious young SC, ST, and female entrepreneurs are energised and enthusiastic, but they may face obstacles in making their dreams a reality. Acknowledging these issues, the Stand Up India Scheme was launched on April 5, 2016, with the goal of promoting entrepreneurship at the grassroots level with a focus on economic empowerment and job creation. This programme has been extended through 2025.

Stand Up India Scheme: Who Can Avail Loan Under This Scheme?

What is Stand Up India Scheme?

The goal of Stand-Up India is to facilitate growth among women, Scheduled Castes (SC), and Scheduled Tribes (ST) by assisting ready and trainee borrowers in starting a greenfield enterprise in trading, manufacturing, and services sectors.

Stand-Up India’s mission is to:

Encourage SC & ST women to start businesses.

Provide loans to both ready and trainee borrowers for the establishment of greenfield enterprises in manufacturing, services, or trading, as well as activities related to agriculture.

Facilitate bank loans between Rs.10 lakh and Rs.1 crore to at least one Scheduled Caste/ Scheduled Tribe borrower and at least one woman borrower per Scheduled Commercial Bank branch.

Why one should opt for Stand-Up India?

The Stand-Up India scheme is based on an understanding of the difficulties faced by SC, ST, and women entrepreneurs in establishing businesses, acquiring loans, and other forms of support that may be required from time to time in order to run a successful business. As a result, the scheme aims to create an eco-system that facilitates and continues to provide a favourable business environment.

Borrowers will be able to get loans from bank branches to help them start their own business under the scheme. The scheme, which applies to all Scheduled Commercial Bank branches, can be accessed in three ways:

  • Directly at the branch or,
  • Through Stand-Up India Portal (www.standupmitra.in) or,
  • Through the Lead District Manager (LDM).

Who all are eligible for a loan under Stand Up India?

  • SC/ST and/or female entrepreneurs over the age of 18.
  • Only greenfield projects are eligible for the scheme’s loans. Green field refers to the beneficiary’s first venture in the manufacturing, services, or trading sectors, as well as activities related to agriculture.
  • SC/ST and/or Women Entrepreneurs should hold 51% of the shareholding and controlling stake in non-individual enterprises.
  • Borrowers should never default on a loan with a bank or financial institution.

Since its inception, the Stand Up India Scheme has sanctioned Rs. 25,586 crore to over 1,14,322 accounts, totaling Rs. 25,586 crore.

GoodReturns.in



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How to save for children’s studies without sacrificing on retirement plans

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Vasan wanted to plan for his retirement along with few of his other goals. He is aged 41 and his wife, Radhika, aged 35. They have two kids, Sadhana (10) and Sanjay (5). Family income and expenses disclosed during the meeting are as follows:

His top priorities are to build corpus for kids’ education and provide for a peaceful retirement. Though his income is high, he was not able to save regularly due to medical expenses for his parents and other family members over the years. He is living in Bangalore and wants to relocate to Chennai post retirement. He is living in an expensive rented house. He wants to continue living at the same locality with high rent as he feels, moving to another locality would eventually increase school expenses. He is keen to build a kitty for the purpose of loan down payment for a house in Chennai.

Risk profile

We assessed his risk profile as ‘balanced’. He is ready to save using relatively high-risk instruments towards his long-term goals. Having said that, he had no prior experience of saving in equity or equity oriented products. Like every individual, he too was impressed with past returns of the stock market, which fuelled his risk appetite. As we found out he had little to no experience in equity investments, we showed him how various aggressive equity mutual funds performed. Monthly movement in prices helped him gauge the volatility of such investments. He appreciated the idea and seemed to have understood the long term thinking needed with respect to such investments.

If Vasan and Radhika want to save for prioritised goals, they must first reduce family’s living expenses which were on the higher side. After the discussion, the couple agreed to maintain a threshold on their expenses at ₹80,000 per month for the subsequent year. Hence, the annual surplus available would be ₹7,46,000.

Recurring deposit (RD) contribution was advised to be ceased. The same quantum of committed contribution was redirected towards long-term goals. Fixed deposit and recurring deposits sums were redirected towards contingency / emergency fund. We also advised them to retain the sums as fixed deposits in bank. Emergency fund worked out to be ₹9,00,000 for that year.

Education goal

An amount of ₹25,000 per month, redirected from RD savings, was advised to be invested in large-cap schemes of mutual funds with an expected return of 11 per cent for a period of 15 years. With this savings, Vasan would be able to fund daughter Sadhana’s education when she turns 18 with a corpus of ₹21.43 lakh. The continued savings for the remaining years will help him garner ₹67.53 lakh for her marriage. In addition, we asked him to continue to save ₹30,000 per year in Sukanya Samriddhi Scheme which would be handy for Sadhana’s marriage. This will fetch ₹16.70 lakh at her age of 24. This is equivalent to planning for current education cost of ₹10 lakh at 10 per cent inflation and marriage cost of ₹30 lakh at an inflation of 7 per cent.

Out of Vasan’s regular income, ₹13,000 per month, was suggested to be invested in large-cap funds in mutual funds with an expected return of 11 per cent for a period of 20 years. With this savings, he will be able to fund son Sanjay’s education when he turns 18 with a corpus of ₹34.52 lakh. The continued savings for the remaining years will help him garner ₹38.20 lakh for his marriage. This is equivalent to planning for current education cost of ₹10 lakh at 10 per cent inflation and marriage cost of ₹10 lakh at an inflation of 7 per cent.

Retirement goal

We also advised Vasan to start a PPF account and invest ₹1,50,000 per annum till retirement. Along with his PF, he will be able to accumulate ₹3.5 crore to ₹ 4 crore at the time of retirement. He can increase the contribution to retirement post his committed savings towards his children’s education and marriage needs or based on any increase in his income.

With these plans in place, he would be left with a surplus of ₹4,40,000 after a year. We advised him to use ₹1,40,000 towards family support fund. This needed to be invested in liquid funds / fixed deposits as this will be used towards any medical emergency.

He was also advised to opt for pure term insurance for a sum assured of ₹1.5 crore immediately and ₹5,00,000 health cover for all 4 family members. As he has an employer provided health cover for sum insured of ₹5 lakh, the above-mentioned personal health cover was found to be enough.

We advised him to save the balance around ₹2-2.5 lakhs towards his house construction fund. He can consider constructing new house at Chennai nearing retirement if he continues to save with discipline. Any increase in salary or change of rental expenses, after his kids go to college, will help him increase his contribution towards house purchase and retirement needs.

Understanding one’s goals, mapping suitable investments based on time horizon and saving in a disciplined manner are key to achieving success in financial planning. Planning for long term goals with an eye for short term needs is a delicate act that needs to be carried out for successful investing.

The writer, Co-founder of Chamomile Investment Consultants in Chennai, is an investment advisor registered with SEBI

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Lock into the Post-Office Senior Citizens Savings Scheme

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For senior citizens looking for the safest fixed income option with a regular pay out, the Post-Office Senior Citizens Saving Scheme (SCSS) is a good bet at 7.4 per cent. The scheme comes with a lock-in period of five years and allows seniors above 60 to deposit up to ₹15 lakh. Leading banks such as SBI and HDFC Bank — considered safe — are offering seniors interest of 5.8-6.2 per cent per annum on deposits of similar tenure.

Though the current interest rate offered on the PM Vaya Vandhana Yojana is the same 7.4 per cent as that of SCSS, the policy term of ten years for PMVVY is a drawback. Today, we may be closer to the bottom in the rate cycle. But don’t lose sleep over whether locking into the investment for longer tenure could result in opportunity loss if the rates start moving up. The current premium for SCSS returns over leading banks is at least 120 basis points. So it may take quite sometime for FDs to catch up. Besides, SCSS allows pre-mature withdrawal with a penalty of 1 per cent after two years, in case you want to move out.

Investment and interest from SCSS is eligible for tax benefits under sec 80C and 80 TTB (up to ₹ 50,000 interest per annum) respectively, which sweeten the deal.

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Why third-party cover is mandatory

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Two neighbours’ daily routine of watering plants leads to an interesting conversation

Sindu: We were away for a few days and all the new saplings have dried up!

Bindu: Yes. We should have predicted this and arranged for sufficient water. Maybe even added some manure for protection.

Sindu: Like an insurance policy, you see.

Bindu: Yes. Like a third-party motor insurance, mandatory arrangements for the saplings!

Sindu: While I agree that having a motor insurance policy is important, I thought it was optional.

Bindu: Well, own damage (OD) cover is optional. It covers damage to your vehicle due to accidents, theft/vandalism, fire, natural calamities and man-made disasters. It even provides accident cover to the owner. Third party (TP) cover, provides coverage against legal liability that arises during an accident and is mandatory.

Sindu: Basically you are saying, it is unlawful to drive around without TP cover, but OD cover is my choice.

Bindu: Yes. TP rates are decided by the insurance regulator, IRDAI, and are fixed across insurance companies (for a particular vehicle), while insurers have the flexibility to decide on the OD cover premiums. You can buy TP covers for three years when you purchase a car (five years for two-wheelers)

Sindu: Okay. So what does TP policy cover?

Bindu: The coverage is similar across insurers. It covers death or bodily injury to the third party, damage to third party vehicle because of your vehicle. Some insurers even provide damage to third-party property up to the policy cover limit.

Sindu: How does it work?

Bindu: If a policyholder gets involved in an accident, then he/she should inform the insurer immediately before raising a claim. You will have to file an FIR with the police and get a copy of it. Then you will have to submit the claim form, along with the FIR copy and other documents to your insurer, who will then send a surveyor to assess the damage. The entire submission process can be done online. After verification, the insurer pays off the claim amount. The process is similar for an OD cover, only you may not require filing an FIR.

Sindu: Well, I have to check if I have an OD cover. Else, I’ll have to buy one.

Bindu: Sure. Next time you renew your motor insurance, you can consider buying a comprehensive cover.

Sindu: I suppose it provides both TP and OD covers?

Bindu: Yes. Not only that; you can also customise your policy based on your needs. It comes at additional cost.

Sindu: Yes, of course, no free lunch I guess!

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Insurance tips for pre-owned cars

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While buying a second-hand car, the most important thing that many new owners miss is getting valid car insurance or transferring the insurance policy in their name. So, if you are planning to buy a second-hand car or have purchased one recently, you should get it insured.

Insure second-hand car

While car insurance is mandatory, many times new owners experience a financial drain after the purchase. This is because they fail to transfer the insurance policy from the previous owner to their name. To avoid losses, you must do the transfer within the stipulated time.

Buying a second-hand car comes with its long list of paperwork before the ownership is transferred. If you do not wish to transfer the insurance, you can buy a new car insurance policy. That way you can choose a plan that suits you.

The insured declared value (IDV) is the approximate market value of the car. Normally, the IDV of a used car will be lower than of a new car. Since the IDV will be lower, so will the premium. However, since old cars are more prone to damages due to breakdown, the total premium amount may go up. Customers should go with a high IDV. In case of total damage, this is the amount the insurer will give the customer.

Know claims history

Check the claim history to understand the claims filed against the policy. If several claims were filed in the last few years, it indicates that the vehicle was damaged more than once. You may check this by providing the policy number to the insurer.

Get the second-hand car inspected by the insurance company to ascertain the current condition, damages (if any), age, and the total kilometres the vehicle has covered. This enables you to find out the availability of the vehicle’s spare parts and safety devices installed in the vehicle.

The insurance company will inspect the vehicle and all these damages found during inspection will not be covered. These are called existing damages. The policy will be issued after inspection, that will be totally the insurer’s call.

Transfer on time

It is advisable to transfer the insurance in your name within 14 days of transferring the car ownership. By failing to do so, the policy remains inactive, which means you cannot file any claims. Also, this may lead to legal problems in the future. If the transfer is not complete even after 14 days, the insurance company is not liable for any losses, be it third-party or damage to your second-hand car. Policy will not be deemed active if not transferred to the name of the new buyer.

First, submit a fresh proposal form to the insurer along with the transfer of registration Certificate (RC), forms 29 and 30 (signed by the previous owner), transfer fee receipt, and the previous policy details. Two, submit a copy of the new RC issued by the Regional Transport Office (RTO) to the insurer.

And three, if the ownership change is not reflected in the new copy of RC even after the policy transfer, or you have failed to submit the proof to your insurer, then during the claim, submit the proof of transfer of the RC to your insurer to get compensated. If the policy transfer process is still going on, you will be compensated only after you submit the proof of transfer of the RC to the insurer.

The writer is Director – Motor Underwriting at ACKO Insurance

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Why small-caps aren’t big bets

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Rookie and so called high-risk investors often buy small-cap stocks, betting on their potential to become tomorrow’s large caps. But there is only a small possibility of this happening, going by their performance in the last decade. A check of the top 250 small-cap stocks by market capitalisation as on March 31, 2011 shows that in the last ten years, only three have moved to the large-cap bucket.

That is, barely a 1 per cent chance! Not just that, many small-caps also lost the battle in terms of alpha generation — the very reason that one invests in these stocks. The returns (CAGR) generated by half the small-cap companies could not beat the Sensex’s 10 per cent returns (CAGR) in the last ten years.

No giant leap

AMFI (Association of Mutual Funds in India) classifies stocks based on their market capitalisation — the top 100 being large cap, the next 150 mid-cap and the remaining, small-cap. We used the same criteria to classify the stocks as of March 2011 and March 2021. Given that there is a long tail, we have restricted our analysis to the top 250 stocks in the small-cap bucket.

Going by this, only three companies out the top 250 — Bajaj Finance, Cholamandalam Investment and Finance and Honeywell Automation India — grew to enter the league of top 100 companies (large-cap) over the last ten years. And only 27 of them inched up to the mid-cap category. Prominent names among these include MRF, Mindtree, PI Industries, Page Industries and Balakrishna Industries.

In all, there is just a 12 per cent probability of a small-cap stock moving buckets in a fairly long timeframe of 10 years. Eight stocks from our sample set are no longer listed leaving 212 to remain small-cap ten years since.

Elusive Alpha

While the bellwether index Sensex grew at a compounded average growth rate (CAGR) of 9.8 per cent from FY11 to FY21, 55 per cent of the small-caps, that is about 137 stocks, could not even beat this return, over the same period. Worse, 78 small-cap companies became smaller, eroding shareholder wealth.

The infrastructure theme that dominated the 2007 bull market, for instance, has now largely gone bust. The list of wealth destroyers comprises many infrastructure players — Punj Lloyd, IL&FS Engineering, Simplex Infra and Uttam Galva Steels. Others such as Karuturi Global, Gammon Infra, and SREI Infrastructure Finance are now penny stocks.

Those who delivered

Yet, the investment thesis, ‘Catch them young and watch them grow’, widely used for backing one’s investments in the risky small-cap stocks, could not be entirely negated.

There is a good 42 per cent chance of small-cap companies generating better-than-market returns. That is, about 105 small-cap companies generated returns (CAGR) of over 10 per cent, in the last 10 years. The top performer was Bajaj Finance that grew at a CAGR of 62 per cent. Next came PI Industries and Balakrishna Industries that gave returns (CAGR) of 48.5 per cent and 38.1 per cent, respectively, from FY11 to FY21. Other prominent mid-cap bets of today such as JK Cements, Abbott India, SRF, Coforge and Sundram Fasteners were all small-caps in FY11.

 

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Key metrics bank depositors should track now

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Not only did the pandemic raise the business risks of banks but it also added more terms to the jargon used to express the financial conditions of banks. Depositors trying to gauge the non-performing assets (NPA) of a lender had to also keep an eye on collection efficiency and proforma NPAs. This stemmed from the Supreme Court’s stay on recognising bad loans until the legality of the loan moratorium’s extension was finalised. Thankfully, the apex court cleared the air through its ruling on March 23. While banks will now revert to the old format of reporting GNPAs or gross Stage 3 assets (Ind AS) in the upcoming quarters, the ruling can have immediate implications on the financials of banks, particularly for the quarter ended March 31, 2021. Depositors will now need to see the strength of the following financial metrics before boiling down on the investment decision.

Bad loans and provisioning

With the Supreme Court having imposed a standstill, the official NPA numbers reported by banks, up till the recent December quarter, didn’t reveal the accurate picture of bad loans. Hence, most lenders disclosed individual proforma NPA. This figure showed what the NPA situation would have looked like if a bank had continued to recognise bad loans without applying the court concessions.

Take a look at the December quarter financials of RBL Bank. The bank reported a drop in GNPA to 1.84 per cent from 3.33 per cent in corresponding quarter last year. However, the bank also disclosed that about 2.62 per cent of the loan book, which was also under moratorium, could have slipped into bad loans during the quarter. Put together, the bank’s proforma NPAs stood at 4.57 per cent in the December 2020 quarter.

Now with the SC having passed the judgement, new terms such as collection efficiency and proforma NPA number will be a thing of the past and banks will express these numbers under the GNPA figure. Banks might hence be required to bump up their provisions accordingly. In the upcoming results, depositors need to be cautious about any sudden NPA spike reported by banks.

That said, the situation is not alarming for all banks for two main reasons. One, many banks have carefully extrapolated the likely slippages on the moratorium book and have adequately provided for it in the first nine months of FY21. In the above mentioned example, RBL Bank has provided for 70.7 per cent of its proforma GNPAs as of December 2020.

Two, many defaulting borrowers may repay the loans before the end of March 31, 2021, fearing downgrade in their credit rating (with the SC ruling having cleared the air around this).

Besides, the higher incidence of defaults, particularly in retail loans could have been on account of the cash crunch led by job losses and pay cuts. It is expected that the RBI measures to improve systemic liquidity could have led to improving collection efficiencies of banks. Another likely succour comes from the legal recourse now available for banks ( SARFAESI Act can now be invoked post the SC ruling).

Capital adequacy

Not only will the surge in provisioning costs dent the profits of the bank, but it might also lead to a heavy charge on the bank’s capital. Banks are required to report Capital Adequacy Ratio (CRAR), which shows the bank’s capital as a ratio to its risk-weighted assets (higher bad loans imply higher risk adjustment). The CRAR describes the bank’s ability to absorb losses without diluting capital, and hence its ability to lend further.

As of December 2020, Kotak Mahindra Bank and Bandhan Bank reported healthy CRAR ratios of over 21 per cent, leaving them with ample room to absorb any shock and maintain growth at a steady rate. Other leading private banks such as HDFC Bank, Axis Bank and ICICI Bank have CRAR in the range of 18-19 per cent.

As per the regulatory requirement, a bank has to maintain a minimum CRAR of 9 per cent, failing which it can be subject to strict actions from RBI, such as curbs on business operations, branch expansion, etc. In extreme cases the RBI may even put the bank under PCA (Prompt Corrective Action).

The RBI in its financial stability report had estimated that about 3 to 5 banks (varying from baseline to severe stress case scenarios) may fail to meet the minimum capital requirements by end of March 2021 out of the 53 scheduled commercial banks.

A few banks have been raising capital to make good the anticipated deficit. For instance, Bank of Baroda, that reported a CRAR of 12.93 per cent as at the end of the third quarter of FY21, has raised capital through the QIP route to the tune of ₹4,500 crore in the first week of March.

Depositors need to be wary of banks that have not prepared themselves of such steep decline in their capital adequacy ratio in the coming quarters.

Margins

Higher NPAs have a two-fold effect on profits; on one hand while additional provisioning can dent profits, interest reversals for loan accounts that have now turned bad, on the other hand, impacts interest income. This can dent their net interest margins.

Besides, the SC ruling on compound interest during moratorium warrants more interest reversals on part of banks. As per the judgement, banks cannot charge any interest on interest (compound interest) during the moratorium period and any amount so collected must be refunded or adjusted from subsequent instalments due. While the Centre had already relieved small borrowers (those with outstanding loans of up to Rs 2 crore) of such compound interest, banks have now requested the Centre to foot the bill for the remaining borrowers as well. This is a bid to avoid a dent their bottom-line.

However, the effect of these interest reversals can likely be set off with good credit growth in the March quarter. According to consolidated bank data from RBI, the scheduled commercial banks reported a credit growth of 6.5 per cent (yoy) in February 2021. While this is lower than 7.3 per cent in February 2020, credit in the country is gradually improving from the lows of 5.8 per cent witnessed in September 2020.

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Which are the best small savings schemes

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The government’s double-take on interest rates on small savings schemes raised eyebrows last week. After the initial cuts, the interest rates on these schemes for the April -June 2021 quarter were restored to FY20 levels (all quarters). What are the attractive pockets in these schemes for investors below 60 years of age?

NSC a decent bet

Interest rates are at a bottom now and are likely to go up in the next year or so. But, one cannot predict the exact timeline. If the circular on the new small savings rates issued on March 31 (withdrawn later) is any indication, the NSC interest rate may go down further, before moving up. Hence, for conservative investors to whom the sovereign guarantee offered by the post office schemes gives peace of mind, the NSC is a good bet.

At 6.8 per cent, it offers a better return than similar tenure bank deposits that offer 5-6.5 per cent.

Importantly, if you are under the old tax regime, the tax benefits on initial investment of up to ₹1.5 lakh and on the interest when reinvested under 80C, will imply an even higher yield, which makes NSC more attractive.

Floating rate on PPF, SSY

The PPF is offering 7.1 per cent and the advantage is that one does not lock into a rate. The interest rate fixed for each quarter applies to the entire balance in your PPF account and not just the investment made in that quarter.

Thus, if the interest rates moves up, the interest accrued on PPF also goes up and vice-versa. The PPF also enjoys EEE taxation – 80C exemption on initial investment, and no tax on the interest accrued and the maturity proceeds.

There are hardly any comparable fixed income products with a 15-year tenure and thus it, stands out.

If you are a parent or guardian of a girl child below 10 years, the Sukanya Samriddhi Yojana should be your first port of call in fixed income. The interest rate offered (7.6 per cent per annum) is the highest amongst all small savings schemes.

The tenure can be a maximum of 15 years from date of opening or till the child turns 21. It matures when your child turns 21.

Similar to PPF, you don’t lock into the interest rate and you also enjoy EEE taxation. Under the new regime, there are no tax breaks (80C deduction) on contributions made to PPF/SSY.

However, the interest accrued and the maturity amount are tax-exempt.

 

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What Happened In The Cryptocurrency Markets This Week?

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Investment

oi-Sneha Kulkarni

|

Bitcoin appears to be on its way to recovery following a sharp pullback at the end of last week. On Thursday 28th March the pullback started. The day before, Bitcoin peaked just over $57K, with Bitcoin’s price dropping to almost $51K at the end of the day on Thursday. As the digital asset rally spreads across bitcoin, Ether, the second-largest cryptocurrency in the world, is hitting new highs. On Friday, the Ethereum network’s digital token gained 6.2%, reaching a high of $2,144 on Saturday.

According to CoinMarketCap.com, Ether has a market value of around $230 billion, compared to about $1.1 trillion for Bitcoin.

What Happened In The Cryptocurrency Markets This Week?

Bitcoin has been steadily increasing in value. The rise appears to have been aided by the news this week that both Visa and Paypal intend to deepen their involvement in the crypto world.

We continue to hear good news about institutional adoption, such as Goldman Sachs’ intentions to give wealth to clients and the continued filings and approvals of ETFs in Canada and Brazil, as well as filings in the United States.

On Thursday, JPMorgan issued a note arguing that if bitcoin’s volatility continues to decline, it could fetch a long-term price of $130,000. According to Business Insider, Bitcoin is becoming more appealing to institutions looking for low-correlation assets to diversify their portfolios.

Morgan Stanley disclosed in an SEC filing on March 31 that 12 of its existing institutional funds could gain exposure to Bitcoin through cash-settled futures and investments with the Grayscale Bitcoin Trust.

After all, as the US continues to implement COVID stimulus, the USD’s status as the world’s default currency may be impeded.

There’s still some debate over whether Bitcoin is a real “hedge against inflation,” but there’s more BTC buy and sell than ever before by more investors, and particularly by the institutions.



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When To Submit Form 15G/15H At Your Bank To Avoid TDS On FD?

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Taxes

oi-Vipul Das

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Fixed deposits (FDs) are among the most common investment instruments because they provide assured fixed returns, capital protection and tax benefits as well. Fixed deposit interest, on the other hand, is completely taxable, which limits the attractiveness of FDs. On FD interest, banks are required to subtract tax at source, or TDS. If your income falls below the exempted cap, you will not have to pay TDS for the interest you receive. TDS is required to be deducted at a rate of 10% by banks. The bank will subtract TDS at a rate of 20% if the depositor fails to have a permanent account number (PAN). You must inform the bank that your income is below the exempted cap to avoid TDS being deducted. And to avoid TDS on FD you must submit Form 15G or Form 15H to your concerned bank. These two forms are self-declaration forms that allow you to certify that your income is below the exempted threshold. Individuals under the age of 60 are exempted from paying income tax on income of less than Rs 2.5 lakh. Income up to Rs 3 lakh is tax-free for those over 60 but under 80. Income up to Rs 5 lakh is tax-free for anyone above the age of 80. For this reason, there are two kinds of forms: Form 15G for those under the age of 60 and Form 15H for those over the age of 60.

When To Submit Form 15G/15H At Your Bank To Avoid TDS On FD?

How interest income from FD is taxed?

Fixed Deposit interest income is completely taxable. It will be applied to your total income and taxed at the slab rates that relate to your overall income. Your Income Tax Return will disclose it under the heading “Income from Other Sources.” When the interest income is credit to your account and not when the account matures, the bank deducts this tax at source. If you have a three-year fixed deposit, the bank can subtract TDS at the end of each year. You’ll get the capital after tax has been deducted. The gross amount must then be added to your income, and TDS must be measured against your total amount of tax-debt.

TDS on fixed deposit

Let’s understand when TDS is deducted from FD:

No TDS: The bank cannot subtract any TDS if the total interest income from all FDs with the bank is less than Rs 40,000 in a year. In the case of a senior citizen aged 60 and over, the cap is Rs 50,000.

TDS @ 10%: From all of your FDs with the bank, the bank calculates 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.

TDS @ 20%: If you do not submit your PAN number to the bank, they will subtract 20% TDS from your deposit. As a result, double-check that the bank has your PAN number.

When your overall income is below Rs 2.5 lakh: When the overall income is less than the minimum taxable limit, no TDS is deducted. Investors may earn more than Rs 40,000 interest income per year, but their overall income (including interest income) falls below the exempted income threshold (Rs 2.5 lakh for FY 2019-20). When a person owes no tax, the bank is unable to subtract TDS. That being said, where you submit Form 15G or 15H to claim interest income without TDS, the bank will not subtract TDS.

When to submit Form 15G or 15H to avoid TDS on FD?

Fixed deposit interest or FD interest income is taxed according to your income tax bracket. If you are in the lowest tax bracket, you will pay less tax. If you’re in the highest tax bracket, you will pay tax in addition to the tax withheld by the bank. If your income is below the taxable cap, you can claim FD interest, by filing Form 15G if you are a regular citizen, or else you can submit Form 15H to your concerned bank if you are a senior citizen. These forms must be submitted at the beginning of the applicable fiscal or financial year. To avoid TDS in FY22, for example, you must fill and submit the forms at your concerned bank now.



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