Fixed Deposit, a type of Term Deposit is popular quite a popular investment choice in India due to high interest rate (as compared to regular savings account) and low risk. The interest rate is fixed for the whole maturity period and, it’s usually considered as an extremely safe investment. The interest rates differ from bank to bank and the interest earned can be calculated Cumulative, Quarterly, Monthly and Standard.

Benefits of FD

• Comparatively safe investment
• Stable and predicted returns (example 8% per annum)
• Well suitable for conservative investors like senior citizens

Limitations of FD

• Low liquidity
• Low returns because effective returns are lower considering taxes and inflation
• Not suitable for long term wealth creation or the investors with high risk appetite like young investors in their 20s or 30s

Currently, Senior citizens earn approximately 50 to 60 basis points higher rate of interest depending on the tenure chosen.

The Interest earned on a bank FD with a tenure of less than 6 months, is calculated at simple interest and is considered on the number of days.

Whereas the interest earned on FDs having a tenure of 6 months and above, is compounded quarterly i.e. is interest earned during the previous quarter is added to the principal for calculation of interest.

For monthly interest payout option, the interest paid will be calculated at a discounted rate over the standard rate. In case you chose a quarterly payout option then interest is calculated and paid quarterly.

The minimum investment amount if you book a bank FD via the Mobile app or Internet Banking is Rs 5,000. But if you visit a bank branch, the minimum investment amount is Rs 10,000.

The minimum tenure of your bank FD can be as low as 7 days.

The money invested in a tax-saver bank FD is eligible for a deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act, 1961 and subject to a lock-in period of 5 years.

You can book a 5-year tax saver FD with a minimum amount of Rs 100 and in multiples thereof but to subject to a maximum of Rs 1.5 lakh.

On the other hand, a regular bank FD is not subject to a lock-in period and does not qualify for a deduction under Section 80C of the Income-Tax Act, 1961. The minimum investment amount in case of a regular bank FD is Rs 5,000.

Yes, the interest earned on bank fixed deposit is taxable under the Income Tax Act, 1961.

The tax is deducted at source by the bank as per the prevailing rules. The rate for TDS (Tax Deduction at Source) is 10%, if PAN is furnished; and if not, TDS is 20%. No surcharge or cess is levied over and above this basic rate.

TDS, with respect to interest earned on your bank FD, is deducted based on the total interest projected on the aggregate of your bank FD for the financial year.

If the total projected interest in a financial year crosses the threshold limit, which is currently Rs 10,000 for non-senior citizens, TDS is deducted proportionately from the existing fixed deposits at the time of interest application. For senior citizens (60 years and above), the union budget 2018 has increased the exemption of interest income on deposits with banks (includes fixed deposits) and post offices from Rs 10,000 to Rs 50,000.

In case, you have no other income apart from interest income, in order to avoid TDS, you can submit a declaration under Section 197A of the Income Tax Act in Form 15-G (for general or non-senior citizens) or Form 15-H (for senior citizens), as applicable.

Furthermore, in order to avoid TDS, split your bank FDs across branches of the Bank. Splitting bank FDs will also enable you to address your liquidity needs.

You can flexibly withdraw the money from fixed deposits before maturity subject to a penalty of 1.0%.

However, if you wish to withdraw the money only partially, then Axis Bank levies no penalty on first partial withdrawal of upto 25% of the principal amount.

Also note, premature withdrawal is not permitted in case of a 5-year Tax Saver Fixed Deposit.