The New Case For FDs

You can’t run a shop without cash in the till. And in the same way you can’t get through life smoothly without a certain cushion of readily accessible cash that you can dip into as per your need. For quite a while now, readily accessible money meant various types of bank accounts, stocks and mutual funds that you could cash in fast whenever needed even as they continued to grow quietly in the background.

However, this year’s budget has changed the situation a bit on account of the 2 quotes below:

The return on investment in equity is already quite attractive even without tax exemption. There is therefore a strong case for bringing long term capital gains from listed equities in the tax net. However, recognising the fact that vibrant equity market is essential for economic growth, I propose only a modest change in the present regime. I propose to tax such long term capital gains exceeding Rs1 lakh at the rate of 10% without allowing the benefit of any indexation.

AND

Exemption of interest income on deposits with banks and post offices to be increased from Rs10,000/- to Rs50,000/- and TDS shall not be required to be deducted on such income, under section 194A. This benefit shall be available also for interest from all fixed deposits schemes and recurring deposit schemes.

Stocks and mutual funds never guaranteed any positive returns and there was a good chance of eroding your capital. On the other hand fixed deposits always had returns that were known right at the start. So if a person opted to have some of their liquid savings in stocks and mutual funds, the reason had at least a little something to do with the zero long term capital gains tax on equities and so freedom from maintaining detailed accounts of purchase and sale,even as fixed deposit interests were taxed as per the income tax rates applicable to the individual and a body had to bother about TDS paperwork.

Now,even as returns from stocks are not guaranteed,taxes on capital gains from stocks are guaranteed. At the same time,TDS hassles on FDs are being reduced. So if you are the sort who prefers minimum paperwork and guess-work when it comes to your family’s finances, simply have a comfortable sum that you can tap into in case of need in FDs in the names of various family members and consign the rest of your savings to long term positions in stocks if you like or better yet move them into tangible assets.

To make life easier yet ,there are lots of FD calculators that can help you calculate the yearly interest, simply make certain that interest remains below Rs 50K and save yourself the form filling to ensure no deduction of TDS.