Now only a few days are left to complete the process of saving tax under the old tax regime for the current financial year. In such a situation, many taxpayers can invest in tax saving fixed deposits ie FDs of banks as an option at the last moment.
Image Credit source: Representational Image
Now only a few days are left to complete the process of saving tax under the old tax regime for the current financial year. In such a situation, many taxpayers can invest in tax saving fixed deposits ie FDs of banks as an option at the last moment. This is because investing in FD is easy. Investment in this can be done by visiting any branch of the bank or through net banking.
Many taxpayers invest in tax saving FDs as they are considered safer than equity investments through Equity-Linked Savings Scheme (ELSS) mutual funds. Apart from this, the returns of FD are fixed and they have nothing to do with the ups and downs of the market. However, taxpayers should also look at options like National Savings Certificate (NSC), Post Office Time Deposit and Public Provident Fund (PPF) to save tax this financial year. Let us know why we are saying this.
There may be further increase in interest rates
The Reserve Bank of India (RBI) is increasing the key policy rates after May 2022. By the end of the financial year 2022-23, the central bank has increased the repo rate by 250 basis points or 2.50 per cent. At the beginning of the financial year, the repo rate was 4 per cent, which has now increased to 6.50 per cent. With the increase in the repo rate, banks have also started increasing the interest rate on fixed deposits. He has also launched several special deposit schemes. However, the interest rates on tax saving FDs have still not reached record highs.
RBI’s March 2023 bulletin states that between May 2022 and February 2023, medium-term deposit rates have increased by 82 basis points for fresh investments. Only 33 per cent of the benefit of the 2.50 per cent rate hike has been passed on to FD investors.
Higher interest rate on second tenure
Most of the interest rate hike has benefited only FDs with short term maturity. Many banks are offering the highest interest for a period between one to three years. For a bank FD to become a tax saver, it should have a tenure of five years. At present, the interest rate on tax saving FD is lower than the interest rate offered by banks on FDs of other tenures.
For example, State Bank of India (SBI) is paying interest at the highest rate of 7 per cent on FDs ranging from two years to less than three years. However, the bank currently has an interest rate of 6.50 per cent on five-year fixed deposits. This is 0.50 percent less than its highest interest rate.
: Language Inputs
