Why are Fixed Deposits trending after Budget 2019-2020?

Posted by Arwind Sharma on March 19th, 2019

Two of the main highlights from the proposals of the Interim Budget 2019 were the increase in the age-old TDS limit on fixed deposit interest income and a tax rebate for individuals with a taxable income of up to Rs.5 lakh in a financial year. Although a fixed deposit is popular in India as one of the most secure options, it is trending even more after the announcement of the Interim Budget. Apart from the TDS limit, the high current FD rates offered by certain issuers and a few other reasons explain why an FD is the investment option of the moment. Read on to know more.

Increase in the TDS limit from Rs.10,000 to Rs.40,000

FD interest income attracts TDS at 10% in case you have submitted your PAN details to the issuer and 20% if you haven’t. Prior to the announcement of the Interim Budget 2019, your interest income in excess of Rs.10,000 earned on FDs offered by banks and post offices was subject to TDS. Now, this threshold has been raised to Rs.40,000. This encourages investors to increase their investments in FDs. However, the limit is unchanged for senior citizens at Rs.50,000 and Rs.5,000 in case of Company FD.

Increase in the disposable income due to tax rebate on income band of 5 lakh or less

The Interim Budget has announced a tax rebate of Rs.12,500 for individuals earning up to Rs.5 lakh annually. Even so, individuals earning up to Rs.6.5 lakh can be exempt from tax if they invest in specified options under Section 80C to claim deductions. Also, salaried taxpayers can benefit from the increased standard deduction, which now stands at Rs.50,000. Together, these proposals add to the disposable income of taxpayers and hence, have boosted the demand for FD investments.

Fixed deposit interest rates are high right now

On 7 February 2019, the RBI reduced the repo rate (key lending rate) by 25 basis points. This has been the first reduction since August 2017. Though this is good news for borrowers, investors may be hit by the move. This is because a decrease in repo rates also causes a dip in deposit interest rates. Drawing from this move, experts opine that interest rates on deposits are expected to dip further owing to the falling interest regime.

This means that if you invest now when the interest rates are high, you can benefit from good FD rates and earn handsome returns on maturity. In contrast, if you wait for the interest rates to rise, you may lose this advantageous investment climate and also earn less in the coming times. Thus, wise investors are now locking in their money at current FD rates and driving the demand further up.

The pre-election season has made stocks volatile

The result of the general elections impacts the economy in many ways such as the change in general and financial policies and law, forex reservations, repo rates, international laws, and others. In the season before the elections, there has been a lot of uncertainty, and this has led to instability in the equity markets, making investments here highly volatile. Analysts believe that this will continue until the first half of 2019. Thus, investors are turning to FDs to bank on the safety and guaranteed returns they provide.

The company fixed deposit offer higher interest rates than other issuers

Finally, FDs offered by companies and NBFCs enjoy higher interest rates, which make them the ideal investment option. For instance, Fixed Deposits offered by trusted issuers like Bajaj Finance yield a high interest of up to 8.75% for regular investors and 9.10% for senior citizens when invested for a minimum of 36 months with payout at maturity. Also, these FDs are awarded MAAA and FAAA ratings from ICRA and CRISIL, which indicate returns the highest level of safety and stability. So, park your money in Bajaj Finance FD to enjoy assured returns.

Cash in on these factors that make your FD investments advantageous. Evaluate your goals and start your investments accordingly to be on top of your finances this season.

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Arwind Sharma

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Arwind Sharma
Joined: April 15th, 2016
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