Fixed deposits are one of the most popular investment options in India. They offer a fixed rate of return and are considered to be a safe investment option. Corporate fixed deposits are similar to bank fixed deposits, but they are issued by companies instead of banks. In this article, we will discuss corporate fixed deposits and taxation in India.
What are Corporate Fixed Deposits?
Corporate fixed deposits are fixed deposits that are issued by companies. These deposits offer a fixed rate of return and are considered to be a safe investment option. Corporate fixed deposits are similar to bank fixed deposits, but they are issued by companies instead of banks.
Corporate fixed deposits are issued by companies to raise funds for their business operations. These deposits are usually offered for a fixed period of time, ranging from 1 year to 5 years. The interest rate offered on corporate fixed deposits is usually higher than the interest rate offered on bank fixed deposits.
Taxation on Corporate Fixed Deposits
Corporate fixed deposits are subject to taxation in India. The interest earned on corporate fixed deposits is considered income and is taxable under the Income Tax Act, of 1961. The tax rate on the interest earned on corporate fixed deposits depends on the income tax slab of the investor.
The interest earned on corporate fixed deposits is added to the investor's total income and is taxed accordingly. For example, if an investor earns Rs. 5 lahks per annum and earns Rs. 50,000 as interest on corporate fixed deposits, then the investor's total income for the year would be Rs. 5.5 lakh. The investor would be taxed according to the income tax slab for Rs. 5.5 lakh.
TDS on Corporate Fixed Deposits
TDS or Tax Deducted at Source is a tax that is deducted at the source of income. TDS is applicable to the interest earned on corporate fixed deposits. The TDS rate on corporate fixed deposits is 10% if the interest earned is more than Rs. 5,000 in a financial year.
If the investor's total income is below the taxable limit, then the investor can submit Form 15G or Form 15H to the company issuing the corporate fixed deposit. These forms declare that the investor's income is below the taxable limit and that no TDS should be deducted from the interest earned on the corporate fixed deposit.
Benefits of Investing in Corporate Fixed Deposits
Corporate fixed deposits offer several benefits to investors. Some of the benefits of investing in corporate fixed deposits are:
- Higher interest rates compared to bank fixed deposits
- Fixed-rate of return
- Safe investment option
- Flexible investment tenure
- Easy to Invest
Risks of Investing in Corporate Fixed Deposits
Investing in corporate fixed deposits also comes with some risks. Some of the risks of investing in corporate fixed deposits are:
- Credit risk - The company issuing the corporate fixed deposit may default on the payment of interest or principal amount
- Liquidity risk - Corporate fixed deposits are not as liquid as bank fixed deposits. It may be difficult to withdraw the investment before the maturity date
- Interest rate risk - The interest rate offered on corporate fixed deposits may change during the investment tenure
Conclusion
Overall, corporate fixed deposits can be a good investment option for investors who are looking for a safe and fixed rate of return. However, investors should also be aware of the risks associated with investing in corporate fixed deposits and should do proper research before investing.
