DelhiDesk Investing in bank fixed deposits (FDs) may seem like a safe option, but post-tax returns on such investments are usually lower than the bank’s offered interest rate. This is because a 10% Tax Deducted at Source (TDS) is deducted from the fixed deposit income, which is added to the person’s total income and taxed according to their tax slab. Individuals in higher tax brackets cannot claim the TDS back, resulting in a lower post-tax return from fixed deposits. Experts suggest diversifying investment portfolios with market-linked products like mutual funds for higher returns. Despite this, fixed deposits have advantages, especially for investors with no or limited income sources and those earning below the basic exemption limits under old and new tax regimes. Some banks have recently increased their fixed deposit interest rates, with senior citizen depositors being offered up to 9.6% interest and others up to 9.1% interest.
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👉 Investing in bank fixed deposit (FD) is considered safe but post-tax return is lower than offered interest rate
👉 10% Tax Deducted at Source (TDS) is deducted from FD income, added to person’s total income and taxed according to their tax slab
👉 Individuals in higher tax brackets cannot claim TDS back by filing their Income Tax Return (ITR), resulting in lower post-tax return from fixed deposits
👉 Average interest rates for 6-month deposits in banks like SBI, PNB, HDFC Bank, and ICICI Bank are around 5% but post-tax return is only 3.49%
👉 Experts suggest diversifying investment portfolios with market-linked products like mutual funds for higher returns
👉 Mutual fund income is subject to taxation but normally higher long-term returns from such plans make up for reduction in income brought on by taxes
👉 Fixed deposits have advantages for investors with no or limited income sources and those earning below basic exemption limits under old and new tax regimes
👉 Some banks have recently increased fixed deposit interest rates, with senior citizen depositors being offered up to 9.6% interest and others up to 9.1% interest.
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