Moneylife - Linkedin Moneylife - Facebook Moneylife - Twitter Moneylife - Youtube Moneylife Rss feed
close

Moneylife » Economy & Nation » Taxation » SBI tax saving deposits—can it really fetch you 17.77% return?

SBI tax saving deposits—can it really fetch you 17.77% return?

Raj Pradhan | 09/01/2012 05:42 PM | 

SBI’s tax saving deposits advertisement claims to give you 17.77% return. While it assumes you are in the 30% tax bracket at the time of investment, it conveniently calculates the return without considering tax obligation on the interest generated at the time of exit


During the tax savings season, people are desperate to save Rs30,900 in taxes by investing their hard-earned Rs1 lakh in certain kinds of savings instruments. One such avenue is a tax-saving fixed deposit (FD) which is for a five-year term without option for premature withdrawal. SBI has put a front page advertisement in Times of India and other leading national dailies claiming to give 17.77% effective annual yield. It assumes you are in the 30% bracket (which may not be true) and it gives an effective annual yield without considering the tax on the interest generated, which could be up to 30%.

While your effective annual yield will vary based on your tax bracket at entry and exit, SBI’s calculations in the advertisement shows the slick marketing which wants to consider highest possible tax savings on entry and no tax liability on exit. It is misleading to an average investor who can get dazzled by the big returns claimed in the advertisement.

This kind of advertisement is usually seen with infrastructure bonds giving tax benefit under 80CCF for Rs20,000 investment. Last year, IDFC bond claimed a tax-adjusted yield of up to 17.85% to investors on buyback (after five years for 10-year bond), which was confusing to the average investor. The company was offering 8% return last financial year.

On a positive note, SBI’s rate of interest for tax savings five-year FD is 9.25% per annum (p.a.) which is also the same as it offers for regular FD. In the past, tax savings deposit FD used to offer a little lower rate than the regular FD. With tight liquidity for banks, they want to entice deposits with high interest rates.

It is important to note that there is no option for premature withdrawal even with penalty for tax savings FD and the interest is taxable. There are other better options for tax savings under 80C. Consider all the options before jumping in with tax savings FD.

SBI has been advertising heavily for attracting big deposits. It is giving 8.5% p.a. interest for deposit of Rs1 crore and above for only seven-day FD. This is a good option for high-net-worth individuals, who want good return as well as liquidity.


Post Comment

Comment

18 Comments
lindadale

lindadale 1 year ago

If we are judging only on numbers then it will be surely confusing to calculate.I never had any account with SBI but your information surely helpful for me to get some new ideas.http://www.axisbank.com/personal/deposit...

Reply »Link » Report abuse
X
nagesh kini

nagesh kini 1 year ago

Only juggling with numbers - one bank offer doesn't differ from others!

Reply »Link » Report abuse
X
nagesh kini

nagesh kini 1 year ago

Only juggling with numbers - one bank offer doesn't differ from others!

Reply »Link » Report abuse
X
nagesh kini

nagesh kini 1 year ago

Only juggling with numbers - one bank offer doesn't differ from others!

Reply »Link » Report abuse
X
nagesh kini

nagesh kini 1 year ago

Only juggling with numbers - one bank offer doesn't differ from others!

Reply »Link » Report abuse
X
Daily Newsletter

1,00,000 Readers

Follow Moneylife
DNL facebook icon DNL linked in icon DNL twitter icon DNL youtube icon DNL rss icon
Moneylife Magazine

What's your say?

How would you rate Modi govt's performance during its first 100 days?
Good
Bad
Average
 
Enter Code : secure code
    change code
VOTE

What you said

Can you depend on mainstream media to report economic scams?

Thanks for casting your votes! View Previous Polls

Join Over 100,000 Awesome Readers

  1. News that Mainstream media does not always cover
  2. Views that are bold and unbiased
  3. Reports that focus on your interests as consumer, investor & citizen