Fixed Deposit

Fixed deposit (FD) is a financial instrument provided by Indian banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date (based on tenure). 

Customer can open Fixed Deposit in bank and gets Fixed Deposit Certificate which is also treated as Fixed Deposit Receipt (FDR) that has to be surrendered to the bank at the time of renewal or encashment.

Period: Tenure of FD is varying from 7 days to 10 years; it depends on bank to bank. Because of this flexibility its powerful financial instruments for investor / individual.

Interest Rate: FD returns depends on Interest Rate; it’s also varying from time to time. Its highly depends on market condition like inflation, liquidity of money in market etc. 
Interest rate of FDs is directly related to RBI monetary policy (Repo Rate – Repo rate is interest rate at which RBI lends money to bank). Under certain conditions like high inflation RBI increase the Repo Rate so Bank will increase their both rates (lending and deposit rates) accordingly.
Co-opeartive banks provide little bit high interest on FD as compare to Nationalized banks.

Safety: FDs are safe up to 1 Lac per customer across all branches of the Bank*. It’s the safest financial instrument in the market. It’s insured by DICGC (Deposit Insurance and Credit Guarantee Corporation). If someone planning to invest more than 1 Lac in FD then invests in different banks (each bank up to 1 Lac), so their money will be secured.
 
Liquidity: Money invested in FD is liquidated easily by paying premature penalty to bank or some bank offers loan on FD which has 1 or 2% higher interest rate than FD interest rate. Its good to pay to premature penalty and withdraw all money from FD. Money will be credited to saving account within 7 working days or less, it’s based on bank policy.
 
Tax exemption: Money invested in Tax Saver FD is exempted from Income Tax under Income Tax Act Section 80C up to 1 Lac if tenure is 5 years. Every bank has Tax Saving / Saver FD scheme. Individual can take this tax exemption for only one year in which money invested not for all five years. 

But Interest of this FD is also taxable. Please see below section [Tax on Return (Interest)] for more detail.

Tax on Return (Interest): Interest earned by FD is taxable. If interest paid to particular customer is more than Rs. 10,000/- per financial year at any branch then bank will deduct Income Tax on interest @10.3%. This is called Tax deducted at source (because interest is treated as income on investment). Bank also issue Form 16A to such customers as a receipt of tax deducted at source.

If individual’s total income (per financial year) does not exceed basic tax exemption limit then they can submit declaration form (Form 15G - in case of individual’s age is below 65 years OR Form 15H - in case of individual’s age is above 65 years) to bank and save this income tax on interest.

Below are the few list of categorized banks: Click on the bank to find interest rate offered by bank for FD.

Nationalized Banks

• Allahabad Bank
• Andhra Bank
• Bank of Baroda
• Bank of India
• Canara Bank
• Central Bank of India
• Corporation Bank
• Dena Bank
• IDBI Bank
• Indian Bank
• Indian Overseas Bank
• Oriental Bank of Commerce
• Punjab and Sind Bank
• Punjab National Bank
• State Bank of Hyderabad
• State Bank of India (SBI)
• State Bank of Mysore
• State Bank of Patiala
• State Bank of Travancore
• Syndicate Bank
• Union Bank of India
• United Bank of India
• Vijaya Bank

Private Sector Banks

• Axis Bank
• Catholic Syrian Bank
• City Union Bank (CUB)
• Development Credit Bank
• Dhanalakshmi Bank
• Federal Bank
• HDFC Bank
• ICICI Bank
• Indus Ind Bank
• ING Vysya Bank
• J&K Bank
• Karnataka Bank
• Karur Vysya Bank
• Kotak Bank
• Lakshmi Vilas Bank
• Nainital Bank
• South Indian Bank
• Tamilnad Mercantile Bank
• Yes Bank

 Cooperative Banks

One can also find Cooperative banks in their city / district. Below are few listings available on financial portal.

• Abhyudaya Co-operative Bank
• Bassein Catholic Co-operative Bank
• Bharat Co-operative Bank
• Bombay Mercantile Co-operative Bank
• Janakalyan Sahakari Bank
• Kapole Co-operative Bank
• Punjab & Maharashtra Co-operative Bank
• Rupee Co-operative Bank
• Saraswat Co-operative Bank
• Shamrao Vithal Co-operative Bank
• Thane Janata Sahakari Bank
• Zoroastrian Co-operative Bank

* - Credit Society or Co-operative society are not considered as Bank. Bank means Nationalized, Co-Operative Bank, Private Bank, Scheduled Bank etc.

Leave Travel Allowance - LTA

What is Leave Travel Allowance?

Leave Travel Allowance (LTA) is one of important component of Salary package, Its an allowance granted by employers to meet the employee's (and their dependents) travel expenses during the year. Employee can take tax exemption on LTA through section 10(5) of Income Tax Act. The main purpose of LTA is to promote Indian tourism industry.

Its not simple as explained above. Following things which will affect tax exemption on LTA:


Who can be covered in LTA: The amount spent on travel should be for self, spouse, children (maximum of two children - if children born after 01 October 1998), parent, brother, sister (any other person who is dependent upon employee).


Travel Area: The LTA exemption is permitted only for travel within India by any mode of transportation i.e. rail, air, road through shortest route. LTA can be claimed only for source to destination place (city) through shortest route. Any amount other than travel like lodging, boarding, food, cab fare, auto fare, driver tip/allowance is not considered for income tax exemption.


Leave Criteria: As per India's Leave Travel Allowance rules, there is no limit on the minimum or the maximum number of days of travel to claim LTA. However in order to make sure that LTA exemption claim is hassle free it is advisable that a minimum of three days of leave from work be taken (this does not include sick leave or holidays or weekends).
 

Tax Exemption Limit: Tax exemption should not be more than LTA provided by employer. For various mode transportation please see below:

If travel by air, Economy air fare by shortest route or amount spent which ever is less can be considered for tax exemption.

If travel by rail, air conditioned first (AC I) Class rail fare by shortest route or amount spent which ever is less can be considered for tax exemption.

If travel by road (source and destination are connected or not through rail), air conditioned first (AC I) Class rail fare by shortest route or amount spent which ever is less can be considered for tax exemption.


Proof: Proof of travel needs to be presented to claim LTA exemption. The tickets (rail / bus) are considered valid proof if journey through rail or any public transportation.

If journey performed through a hired or rental car, the receipt from the travel agency or car rental agency is considered as valid proof. Also toll receipts are considered in tax exemption.

If journey performed through air, boarding pass and ticket are considered as valid proof.

The supreme court said in hearing one of case (between L&T and Income Tax department of India): “The beneficiary of exemption under Section 10(5) (of the Income Tax Act) is an individual employee. There is no circular of Central Board of Direct Taxes (CBDT) requiring the employer under Section 192 to collect and examine the supporting evidence to the declaration to be submitted by an employee(s).”
Refer court appeal.


Claim Period: LTA tax exemption can be claimed twice in block of 4 years. You can not claim LTA twice in the same year. These block of 4 years are predefined by government as below:

01-Jan-2002 – 31-Dec-2005
01-Jan-2006 – 31-Dec-2009
01-Jan-2010 – 31-Dec-2013
and so on

There is an option to carry forward only one LTA claim in next block of four years, but the condition is that claim should be in first year of next block otherwise it will be lapse.

Examples of Tax Exemption on LTA:

Let’s say Person X and his / her spouse are traveling to Bangalore from Mumbai. 
But instead of going from Mumbai to Bangalore, they go from Mumbai to Hyderabad, and then got to Bangalore. 
Person X travel by train in the AC 3 tier category. 
The cost of AC 3 tier train tickets are as follows: 
Mumbai – Hyderabad: Rs. 800 
Hyderabad – Bangalore: Rs. 700 
Bangalore – Hyderabad: Rs. 700 
Hyderabad – Mumbai: Rs. 800 
Thus, Person X spend a total of Rs. 6,000 for two people. 

Now, the shortest route to your destination in this case would be Mumbai to Bangalore. The AC First class ticket costs Rs. 2,350 for this. 
So, round trip fare would have been Rs. 9,400 for two people. 

The amount exempt from income tax is the lesser of these two. Thus, in this example, even when Person X haven’t traveled through the shortest route, he / she can claim income tax exemption for the full amount of Rs. 6,000. 

And what about the actual allowance that Person X get as part of salary? 

Let’s say Person X get a leave travel allowance of Rs. 10,000. 
Would it be fully exempt? 
No. As the amount exempt is the lesser of the amount actually spent and the fare by the defined class through the shortest distance. Thus, the amount exempt from income tax would be Rs. 6,000. The remaining Rs. 4,000 would be taxable, and would be included in income.
If Person X gets a leave travel allowance of Rs. 5,000 then only 5,000 can be exempted from Income Tax.

FAQ on LTA:

When Husband and Wife both receive LTA

In such a case, both of them could claim LTA individually as the rules of LTA apply individually to each of them. So in a block of four years, each spouse can claim LTA twice. The only restriction is that both spouses cannot claim an LTA exemption for the same journey. In other words, LTA cannot be claimed twice for the same journey.