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Compared with five year tax-saving FDs of banks, NHB scores better
WHAT IS IT? T
he product is a five-year term deposit scheme of National Housing Bank (NHB), a housing finance entity whose entire paid-up equity capital is contributed by the Reserve Bank of India (RBI). The scheme offers 9.25 per cent interest rate per annum, while for senior citizens, it is 0.60 per cent higher at 9.85 per cent. Individuals can avail this term deposit scheme.
The scheme is open for investment through out the year.
Interest earned in NHB Suvriddhi Term Deposit is calculated quarterly and, thus, the annualised return or yield works out to be 9.58 per cent for all and 10.22 per cent for senior citizens.
There are two interest options available under the scheme cumulative interest option and non-cumulative interest option.
Tax benefit on the principal invest ment amount is available under Section 80C up to a maximum of Rs 1,00, 000 per financial year.
TAX DEDUCTION AT SOURCE:
The interest on the term deposits is taxable. As per the pre of sent provisions U/S 194A the Income-Tax Act, 1961, interest income up to Rs 10,000 in a financial year is exempt from deduction of tax at source.
The annualised return of 9.58 per cent makes this scheme attractive against public provident fund (PPF), which carries the same tax benefit of section 80C on principal and offers an 8.8 per cent interest rate. The scheme may also look attractive due to only five-year lock in period against PPF, where one can withdraw only 50 per cent of the amount after three years and full amount only after 15 years.
However, interest on PPF is completely exempt from tax, while NHB's term deposit interest will be taxable if the total interest income from it and other savings instruments is more than Rs 10,000. A Rs 1,00,000 invested in both will fetch an initial tax benefit of around Rs 30,000 in the first year for an investor in the highest tax bracket. But at the end of five years, the NHB investor, who will pay tax on the interest received, will have in hand about Rs 1,38,400, while the PPF investor, with tax-exempt interest, will have about Rs 1,52,400 in hand, which is Rs 14,000 more than the former.
Compared with five-year tax-saving fixed deposits (FDs) of banks, NHB scores better. The coupon interest rate on State Bank of India's five-year tax-saving FD is 8.50 per cent, while in private banks, like HDFC Bank and Yes Bank, it is slightly higher at 8.75 per cent.
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