Fixed Deposits: When you hear the phrase “investment,” only one thing immediately comes to mind: fixed deposits, or FDs. Most often, people invest money in it without realising the potential losses. We’re going to discuss five of the biggest drawbacks of foreign direct investment today.
Direct Deposit Limitation
The interest that you get on FD cannot be deposited to your account directly. The interest received is fully subject to taxation. The interest you earn from FD is included in your income when you submit your ITR, and you will be required to pay taxes on it to the government.
TDS (Tax Deducted at Source) on FD Interest
On the interest obtained from FD, TDS is additionally imposed. At the end of the year, banks take this out of the interest earned. Nonetheless, the depositor retains the choice to refuse TDS and pay the full amount of interest upon maturity. All of the TDS deductions made for the FD are displayed on Form 26AS, which is connected to the depositor’s PAN card.
Be aware that no TDS would be withheld from the FD interest if the depositor’s yearly income is less than Rs 2.5 lakh. Send Forms 15G and 15H to the relevant bank branch to make sure the bank is aware of your modest income.
Limited Interest Rates on FD
In contrast, the greatest interest rate that FD may give you is 10%. There are instances when not even that much interest is produced, but mutual funds and other investment options can yield returns of up to 20% or 30%. However, one drawback of mutual funds (MF) is their high risk profile; investors who can afford to take on greater risk can make more money with MF investments.
FD Interest Rates vs. Inflation
On occasion, the interest rate on FD may be less than the rate of inflation. Furthermore, the bank will not pay you a single penny more than the amount you deposited if you withdraw your money before the designated limit.
FD Duration and Tax Implications
With an FD, you receive consistent interest for the whole term, meaning the bank doesn’t give you a single rupee above the stipulated rate. FDs now have longer durations; in the past, they were primarily beneficial for short-term savings. However, it is not eligible for the tax-free option. However, PPF investments are made outside of the tax code.