| The humble fixed deposit gets a tax break.
|
| |
| The fixed deposit just got better. It was always a reliable product, but giving you only a modest return and till a year back even a tax-break on the interest that you earned.
|
| |
| What’s more, if you wanted your money back in an emergency, you could have it back for just a small penalty.
|
| |
| But things changed last year when the FM decided that the interest you earned would be taxed. While that is still the case for deposits of less than a five year tenor, the five year FD now has become an attractive option because it’s eligible for a tax break under Section 80C.
|
| |
| That means you can put away as much as a lakh every year. So if you want a deposit of say Rs 10,000, you get an upfront tax brake of Rs 2,000, if you’re paying tax at the rate of 20 per cent, since the amount invested is deducted from your income.
|
| |
| Says Shailendra Bhandari, MD, Centurion Bank of Punjab, “It’s a safe product with a guaranteed return. We are currently offering 7 per cent for a five year deposit and one percentage point extra for senior citizens.”
|
| |
| Bhandari says the bank will continue with a fixed rate product. A senior executive from UTI Bank too believes that the product should not be offered on a floating rate basis.
|
| |
| Say he, “We are not considering a floating rate option and we are not also going to lower the interest rate, because of the upfront tax break.”
|
| |
| However, Anup Bagchi, general manager, ICICI Bank, believes that a floating rate product is possible though some customers may not find it attractive.
|
| |
| Says Bagchi “Our rates are currently 6.5 per cent for a five year deposit and since customers are allowed to take a loan against an FD, it makes the product more attractive.We will not withdraw that feature.”
|
| |
| The clarification that banks are awaiting is whether the FD can be withdrawn mid-term .That seems unlikely. But even without that its worthwhile because you do save a lot. |
| |
|
| |
Content Guide
