Advantages of a Fixed Deposit Account

Many times you may have heard people advising you to invest your money in a FD account. So what is FD? Fixed Deposit or FD is a type of term deposit that gives you a fixed rate of interest until maturity. By investing in FDs you can save and earn money at the same time. It also offers a higher rate of interest compared to a regular savings account. Apart from this, there are other advantages of having a FD account.

Mentioned below are a few advantages of having a FD account:

• Assured Return – If you invest your money in a fixed deposit account, you are assured a return. You will earn interest on your deposited amount, but the rate of interest depends on the tenure you have chosen. Banks in India are offering around 7% to 8% interest on Fixed Deposits at present.
• Flexible Payment – FDs allow you to choose how you wish to receive interest. You can choose to be paid annually, monthly or during maturity.
• Flexible Tenures – Fixed Deposits have flexible tenures. You can open a FD account for as less as 7 days. The tenure options are not the same for every bank. Also, it is not mandatory for you to have an account with a particular bank to open a FD account with it.
• Helps during Emergency – During emergencies when you are in need of money, a FD can help you a lot. Many banks offer loans against Fixed Deposits. Up to 90% of the deposit can be availed as loan. Some banks allow partial withdrawals of FDs as well.
• Risk Management – Financial instruments such as mutual funds, gold, etc., may provide high returns, but are also very risky. To adjust this market risk, it becomes important to invest in debt instruments. FDs will help you manage this risk as the returns are fixed.
• Easy to Withdraw – You can withdraw the amount you have deposited in your FD account at any time. For premature withdrawals, banks may charge you a small penalty.
• Saving Habit – Fixed Deposits help people in developing a habit of saving money. When you invest a certain amount in FD, that amount cannot be used until you withdraw it or maturity.

These are some of the benefits of investing in fixed deposits. You can open a FD at any time and the application process is also very simple. Just make sure that you select the right tenure.

What you need to do if you get an IT Notice after Demonetization

What you need to do if you get an IT Notice after Demonetization

The deadline to convert and deposit demonetized currency has elapsed. If the deposited amount is below Rs.2.5 lakhs, then you do not have to worry about paying tax on it. However, the Income Tax Department may send you a notice if your deposited amount exceeds Rs.2.5 lakhs.

Who are likely to get a notice from the Income Tax Department?

Banks have been directed by the government to furnish the following details:

• Individuals who have deposited over Rs.2.5 lakhs in open fixed deposit accounts or savings accounts.
• Individuals who have deposited over Rs.12.5 lakhs in their current accounts.

Upon these details being sent to the IT department, necessary notices may be sent to individuals. You may also get a notice if you have purchased high value items during this period such as a car or gold. This is because the IT department has asked all car dealerships and jewelers to provide their business transactions to the department if there has been a spike in their sales after the announcement of demonetization.

What you need to do under such circumstances

Do not panic if you receive a notice from the IT department. As this is not a normal time for this country, anyone who has deposits over Rs.2.5 lakhs in their accounts may get a notice. This does not mean that an investigation will be launched against you to implicate you in any manner. Additionally, the IT department may only send such notices to those individuals whose deposit amounts do not match their income as per their assessments.

Those who have relevant or necessary documents to explain their deposit amounts do not need to worry in any way. Furthermore, if you have done nothing illegal in obtaining the money in your deposit, you do not have to worry irrespective of your deposit amount or income. You will be investigated only if you do not provide a satisfactory answer to explain the source of the money.

After the announcement of demonetization, the government has also made it compulsory to furnish your PANCard number in case of deposit amounts exceeding Rs.50,000. Therefore, if you have not filed IT returns for a while and your deposit amount has exceeded Rs.2.5 lakhs, the IT department may send you a notice asking you to explain the source of the income and request you to file your taxes. An investigation will also be launched in such cases.

What will happen if you do not respond to the notice sent by the Income Tax Department?

You must always respond to any notices the IT department issues you. However, for whatever reason, if you have not responded to the notice, the department will send you a follow-up communication. Furthermore, the department will use your deposit data and other details available on you to assess your income and tax liability, upon which you will be asked to pay the difference, if any.

However, note that if you abstain from responding to the IT department notice, they may assume that you cannot explain the source of your income and hence, you did not respond to the notice. If you are unsure on how to proceed or respond to the notice, you always have the option of consulting with a tax consultant or any practicing CA for the right course of action.

It will always be beneficial if you keep a record of all your finances through relevant documents for future use. You can furnish these documents if you ever receive a notice from the IT department and resolve the issue quickly. It is not a good practice to keep such issues pending. In case you are served with a notice, always cooperate with the authorities instead of resisting responses or providing misleading information. Always pay your dues to stay under the radar.