Latest news with #NewIncomeTaxBill2025
Time of India
24-04-2025
- Business
- Time of India
Going for premature withdrawal of fixed deposit? Know which type of bank FD minimises loss on interest and penalty
When a financial urgency arises, we usually have to break our savings to meet the emergency. The easiest option is to withdraw money prematurely from a fixed deposit . However, not many FD investors are aware of the two methods by which banks usually calculate the penalty if the money from the FD is withdrawn before the maturity date. Income Tax Guide Income Tax Slabs FY 2025-26 Income Tax Calculator 2025 New Income Tax Bill 2025 ET Wealth Online decodes the two methods of calculating the premature withdrawal FD penalty. Which penalty method is beneficial for FD investors? Method 1: FD interest rate is reduced by a certain percentage One of the most common methods of levying a penalty on premature withdrawal of an FD is the reduction of the interest rate by a certain percentage. For instance, your bank may give you 1% less on the FD interest rate if you go for a premature withdrawal from your FD. Play Video Play Skip Backward Skip Forward Mute Current Time 0:00 / Duration 0:00 Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 1x Playback Rate Chapters Chapters Descriptions descriptions off , selected Captions captions and subtitles off , selected Audio Track Picture-in-Picture Fullscreen This is a modal window. Beginning of dialog window. Escape will cancel and close the window. 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Nu Image Medical Shop Now Undo Adhil Shetty, CEO of says, "Reduction in applicable FD interest rate by a certain percentage as per the bank's rule is one of the common methods to levy a penalty on premature withdrawal from FD. Usually, 1% or 0.50% is levied as a penalty on premature withdrawal from an FD by the banks. Suppose you have booked an FD for 18 months at 7.25%. However, due to some emergency, you break your FD after one year. The FD interest rate for one year, at the time of booking the FD, was 7%. The penalty applicable is 1%. Hence, the bank will pay you 6% interest at the time of breaking the FD before maturity." Also Read: This bank is offering 8.55% to senior citizens on fixed deposits Live Events Method 2: A penalty is levied on the total amount Some banks use another method of calculating the penalty at the time of premature withdrawal of the FD. Here, instead of levying a penalty on the interest rate, the penalty is levied on the total amount. Shetty says, "Under this method, the bank first calculates the total accrued amount on the date the FD is being broken. The total accrued amount includes principal and interest. A certain percentage is levied as a penalty on the total accrued amount, and the balance is paid to the FD holder. Suppose you decide to break your FD before maturity. The bank levies 1% as a penalty on the total accrued amount. On the date, FD is being prematurely withdrawn, the total accrued amount is, say, Rs 50,000. The bank will levy a penalty of 1% on this amount, i.e., Rs 500 as a penalty. The balance amount will be paid to the investor." Which saves more money for the FD investors? Raj Khosla, Founder & MD, says, "Premature withdrawal penalties are levied to discourage investors from hasty termination of fixed deposits. A penalty only on the interest ensures a lower deduction, as there will be a marginal drop in the resultant return. On the contrary, a similar penalty levied on the principal and accrued interest will see a higher penalty amount." Also Read: 4 banks that are still offering special FDs with high interest rate Let us understand this by taking an example. Suppose you book an FD of Rs 1 lakh at 7% per annum for five years. Here we have taken two scenarios: a) Premature withdrawal happens before 6 months, and b) premature withdrawal happens after three years. Premature withdrawal of FD happens before 6 months Suppose the premature withdrawal of a five-year FD happens before 6 months of completion, say in the 5th month. Penalty on applicable interest: According to the first method, the bank will first check the effective interest for 5 months of the FD on the date when the FD investment was made. Suppose this is 5% for a 5-month FD. A penal interest of 1% is applicable on the effective interest rate. Here, the bank will calculate the interest payable to you at 4% (5%-1%) on the principal amount. Usually, banks do not offer compounding benefits on short-term FD tenure of 180 days or 6 months. In such a case, the FD payable amount is calculated on a simple interest basis. Here, it is assumed that the bank calculates the amount on a simple interest basis. On the premature withdrawal of FD, the bank will pay you Rs 1,01,667. Penalty on the total accrued amount: In the second method, the bank calculates the total accrued amount on the date the FD is prematurely withdrawn. Due to the FD's short-term nature, the bank will also calculate the accrued amount using simple interest. Remember, the total amount is calculated using the original contracted interest rate, 7% in this case. Suppose the accrued amount is Rs 1,02,917. The bank applies a 1% penalty to this accrued amount, which comes out to Rs 1,029 (1% of Rs 1,02,917). This will be deducted from the total accrued amount of Rs 1,02,917, and the balance of Rs 1,01,888 will be paid to the FD investor. In the first method, the individual loses Rs 221 as compared to the second method. Revised Rate Revised Tenor (Months) Penalty Net Maturity Value PW in 5 months; 1% interest loss 4% 5 ₹ 1,01,667 PW in 5 months; same rate; 1% penalty on P+I 7% 5 ₹ 1,029 ₹ 1,01,888 PW in 37 months; 1% interest loss 5.5% 37 ₹ 1,18,344 PW in 37 months; same rate; 1% penalty on P+I 7% 37 ₹ 1,239 ₹ 1,22,620 Premature withdrawal of FD happens after 3 years In the second scenario, suppose the premature withdrawal of the FD happens after three years, say in 37 months. Here, the compounding benefit will be applicable in both methods as the tenure of the FD is more than 6 months, i.e., 37 months. Penalty applicable to interest rate: Here, too, the bank will first check the effective interest rate for 37 months of FD on the date the FD was booked. Suppose this is 6.5% for 37 months. A penal interest of 1% is applicable on the effective interest rate. Here, the bank will calculate the interest payable to you at 5.5% (6.5%-1%) on the principal amount. With an effective interest rate of 5.5%, the premature withdrawal is Rs 1,18,344, which will be paid to the FD investor. Penalty on the total accrued amount: Here, the bank will calculate the total accrued amount on the date the FD is being prematurely withdrawn. The total accrued amount will be calculated on the original contracted rate, 7% in our example. The bank will also offer a compounding benefit as the FD has been held for 37 months. Suppose the accrued amount is Rs 1,23,858. The bank will apply a 1% penalty on this accrued amount, which is Rs 1,239. This will be deducted from Rs 1,23,858, and the balance of Rs 1,22,620 will be paid to the FD investor. Here, the individual loses Rs 4,275 in the first method. As the tenure of FDs held before premature withdrawal increases, the penal calculation on the total accrued amount helps investors save more money compared to the penalty levied on the interest rate. What you should do as an FD investor As an FD investor, it is important for you to read the bank's terms and conditions while making an investment. The terms and conditions will help you understand how banks will calculate a penalty in case of premature withdrawal. Khosla says, "The penalty on premature withdrawals could be higher for fixed deposits booked for longer tenures, while the penalty could be a few basis points lower for shorter tenures. Hence, check the terms and conditions while booking the FD." However, the penalty could exceed 1% as well in certain cases. Khosla explains this with an example. For instance, the interest rate on a 1-year FD is 7.5% and the interest rate on a 6-month FD is 7% at the time of booking the FD. The interest will see a 150 basis point plunge if you're prematurely withdrawing an FD after 6 months. Therefore, the interest amount will be calculated at 6% (7%-1% penalty) for 6 months. At times, banks may waive off premature withdrawal penalties in exceptional cases. Khosla says, "For instance, some banks don't levy a penalty on premature withdrawals on the FD if the gross proceeds are reinvested in a new fixed deposit. Banks, at their own discretion, can also waive off premature withdrawal penalties for senior and super senior citizens." You should also check whether the FD you booked with the highest interest rate is callable or non-callable. Shetty says, "Premature withdrawal is applicable only to callable FDs. These deposits do not carry a lock-in period, offering flexibility in terms of access. On the other hand, non-callable FDs do not permit early withdrawal before the specified lock-in period. However, there are certain exceptions. According to Reserve Bank of India (RBI) guidelines, depositors may withdraw funds from non-callable FDs under exceptional circumstances such as bankruptcy, a court order, business liquidation, or in the event of the depositor's death. However, the penalty imposed for prematurely withdrawing a non-callable Fixed Deposit can be considerably higher."
Time of India
23-04-2025
- Business
- Time of India
Victim of insurance mis-selling? You are entitled to get a full refund, rules NCDRC
Have you ever been forced to compulsorily buy an insurance policy with another financial product, like a loan or bank locker? Were some features of the insurance policy that would otherwise have potentially discouraged you from buying it deliberately hidden from you? If you have answered yes to any of the above, chances are that you have been missold an insurance policy. Income Tax Guide Income Tax Slabs FY 2025-26 Income Tax Calculator 2025 New Income Tax Bill 2025 With cases of insurance mis-selling getting increasingly rampant and commonplace these days, individuals might think they are trapped with such policies, and have no other recourse but to keep paying premiums, with no scope for getting a refund. However, that is not the case. In a recent verdict in November 2024, NCDRC ( National Consumer Disputes Redressal Commission ) clearly emphasised that any insurance policy that had been missold by the insurer or their agent to the policyholder would be entitled to a complete refund of the premium amount . Play Video Pause Skip Backward Skip Forward Unmute Current Time 0:00 / Duration 0:00 Loaded : 0% 0:00 Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 1x Playback Rate Chapters Chapters Descriptions descriptions off , selected Captions captions settings , opens captions settings dialog captions off , selected Audio Track default , selected Picture-in-Picture Fullscreen This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Opacity Opaque Semi-Transparent Text Background Color Black White Red Green Blue Yellow Magenta Cyan Opacity Opaque Semi-Transparent Transparent Caption Area Background Color Black White Red Green Blue Yellow Magenta Cyan Opacity Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Drop shadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. In the case of Gyan Prakash Singh vs Tata AIA Life Insurance , the NCDRC called out the life insurer for misrepresenting the premium payment tenure to the policyholder. While the insurer's agent conveyed to Singh that the premium payment would be a one-time obligation, the premiums were, in reality, to be paid annually for 10 years. The NCDRC also directed Tata AIA to refund the entire premium amount deposited by Singh, i.e. Rs 2,47,700, with 9% interest, along with Rs 10,000 as compensation towards mental harassment and Rs 5,000 as litigation cost. Live Events What was the case? Here is a brief, chronological summary of the case, as it happened: In 2009, Gyan Prakash Singh, who hails from a low-income family, was approached by a TATA AIA agent, who missold him multiple insurance policies under the guise that just by depositing a one-time premium, the policy's payout would go up by 1.5x, after 1.5 years. Impressed by these claims, Singh purchased 5 policies. 'One policy was in his name: Gyan Prakash Singh (Rs. 49,900 dated 19.06.2009), two policies in his wife's name: Smt. Amita Singh (Rs. 49,900 dated 26.06.2009 and Rs 49,900 dated 28.06.2009 and two policies in his daughter's name: Nishi Singh (Rs. 49,900 dated 11.06.2009 and Rs. 49,900/- dated 11.06.2009', the judgment said. However, within 10-15 days of receiving these policies, Singh's family found out that the premium was required to be paid annually for 10 years, and was not a one-time activity, as originally conveyed by the insurer's agent. This, as the judgment also noted, was financially unsustainable. 'Agent of the appellants/ opposite parties (TATA AIA) told them to deposit the said amount at one time, enticed them to take the policy because such a big amount, one retired employee and his wife and daughter, every year regularly for 10 years, cannot deposit', it added. Despite sending emails and letters to Tata AIA, he received no meaningful response from TATA AIA, as per the judgment. Sensing that he had been wronged, Singh refused to accept the policy within a week, demanded a refund and promptly approached the concerned officials in TATA AIA; however, they did not respond. Although the typical freelook period at that time was 15 days from the receipt of the policy, the policyholder could not get a full refund for cancelling the policy. Three years later, in 2012, TATA AIA issued a partial refund for each of the 5 policies, while forfeiting the remaining amount. Aggrieved, the policyholder approached the State Commission and subsequently, the NCDRC. What does IRDAI say on insurance mis-selling? Shilpa Arora, COO & Co-Founder of Insurance Samadhan, explains, 'Misselling of an insurance product occurs when an insurance policy is sold by providing false information, omitting crucial details, or using coercive tactics. Agents may falsely promise to help recover lapsed policy money, and there is a chance that the policies are offered with the allure of interest-free loans.' 'In some cases, the insurer might misrepresent the duration of premium payment, exaggerate the benefits of the policies, or even bundle the policies without the consent of the policy buyer', she adds. Once Singh escalated the matter to the District Consumer Dispute Redressal Forum, TATA AIA issued a partial refund to Singh, paying back 1/5th of the deposit amount of each of the 5 policies, and forfeiting the remaining 4/5th amount. However, Singh did not encash this cheque. Regarding the reason for this action, TATA AIA contended that the complaint was time-barred as the policies were issued in June and July 2009, whereas the complaint was filed in the year 2013. The complainants had approached beyond freelook period, seeking a refund of premiums, which was untenable. In this matter, the judgment noted that 'the appellant/opposite party on 26.7.2012 issued the refund of 1/5th of the amount of each policy to the applicant/ complainant, which the applicant/complainant has not accepted by not depositing the cheque in their account. Therefore, the cause of action of the complaint having arisen on 26.7.2012, the complainant has been filed within the period of limitation. Hence, the complaint is not time-barred.' NCDRC called out the cheating and enticement on behalf of TATA AIA's agent, and asserted that wrong information had been provided to the policyholder. 'It is clear that really the agent of the applicant/opposite party gave the wrong information to the applicant/complainant for taking the policy, and after cheating, enticed them to take the policy, which is an unfair trade practice. Under the above condition, the deduction made by the appellant/opposite party from the deposited amount of the applicant/complainant is unjustified because, after cheating, the applicant/opposite party has been enticed to take the policy, said the judgement by NCDRC. ET Wealth reached out to insurer Tata AIA Life; however, despite multiple attempts, the insurer refused to comment on the matter. Can I approach the insurer for policy misselling if the free-look period has lapsed? This incident is more than a decade old, and since then, IRDAI has put across multiple checks and balances to stop mis-selling. It has resulted in bringing down such instances substantially. However, even now, such cases often surface. Many a time, policyholders might realise only while they are paying their annual premiums, long after the free-look period has lapsed, that they have been missold a policy. In such a case, they can approach the concerned insurer's GRO (Grievance Redressal Officer). After receiving the complaint, if they do not respond within 15 days, policyholders can further escalate their complaint to IRDAI's Bima Bharosa portal . If the query remains unresolved thereafter as well, the subject can be escalated to the Insurance Ombudsman , in case the claim amount is up to Rs 50 lakhs. Policyholders will have to incur no charges while approaching the ombudsman either online, by logging in at or even offline. IRDAI's circular states that the insurer will have to comply with the award of the Insurance Ombudsman within 30 days of receipt of the award. 'In case the Insurer does not honour the Insurance Ombudsman award within 30 days, a penalty of Rs. 5000/- per day shall be payable to the complainant for each day of delay', as per IRDAI. 'Remember that a total reimbursement can be granted despite the expiry of the policy's free-look period, if it is proven that the policy was mis-sold by not disclosing the terms of premium payment or other facts', explains Arora. Keeping documented evidence of utmost importance As per Narendra Ganpule, Partner, Grant Thornton Bharat, 'The customer must mandatorily keep documented evidence to show that he/she was mis-sold the policy by making false claims / false explanation of policy benefits.' Since regulators require substantial proof of misselling, all communication that has taken place between the policyholder and the insurer's agent or representatives must be kept handy. While buying any policy, each document is important and can be used later to file a complaint. 'Original policy document, any written or digital communication like the WhatsApp chat with the insurer, and all the materials that were provided by the insurer at the time of sale should be kept carefully. Policyholders should always keep the call recordings or notes of the promises that were made by the agent and, most importantly, keep the proof of the payment, like premium receipts', adds Arora.
Time of India
22-04-2025
- Business
- Time of India
What happens if you do not inform your tax regime choice to your employer?
By now, salaried employees must have been asked by their employers to choose their preferred tax regime - new or old tax regime - for the purpose of TDS from salary. It is important to inform your employer of your preferred tax regime on time to ensure that a lower tax rate is applied to your salary for the financial year 2025-26. Income Tax Guide Income Tax Slabs FY 2025-26 Income Tax Calculator 2025 New Income Tax Bill 2025 Understanding the income tax laws applicable for the current financial year (FY 2025-26) is crucial for making an informed decision when choosing between the new and old tax regimes. Starting April 1, 2025, no tax will be payable if your taxable income does not exceed Rs 12 lakh, and the highest tax rate of 30% will apply to taxable incomes over Rs 24 lakh under the new tax regime . The tax rates and slabs of the old tax regime remain the same as in the previous year. Also read: How salaried employees can choose tax regime for TDS on salary? Play Video Pause Skip Backward Skip Forward Unmute Current Time 0:00 / Duration 0:00 Loaded : 0% 0:00 Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 1x Playback Rate Chapters Chapters Descriptions descriptions off , selected Captions captions settings , opens captions settings dialog captions off , selected Audio Track Picture-in-Picture Fullscreen This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Opacity Opaque Semi-Transparent Text Background Color Black White Red Green Blue Yellow Magenta Cyan Opacity Opaque Semi-Transparent Transparent Caption Area Background Color Black White Red Green Blue Yellow Magenta Cyan Opacity Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Drop shadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Treatment That Might Help You Against Knee Pain Knee pain | search ads Find Now Undo What happens if you don't inform your employer about your preferred tax regime? Salaried employees should communicate their preferred tax regime on or before the due date, as communicated by their employers. According to income tax laws, if a salaried employee fails to inform the employer about the preferred tax regime, the employer will deduct tax from the employee's salary according to the income tax slabs under the default tax regime. Live Events The government has made the new tax regime the default option from April 1, 2023. The Central Board of Direct Taxes (CBDT) issued a circular in April 2023 to guide employers on the process of deducting TDS on salary, as the new tax regime becomes the default tax regime. As per the circular, employers are required to ask each of their employees about their preferred tax regime for tax deduction from salary. If an employee does not notify the employer of the preferred tax regime, tax deduction at source (TDS) will be made as per the default tax regime, which is the new tax regime. This essentially means that if an employee does not inform his/her employer about his/her choice of tax regime, the new tax regime will automatically apply for TDS purposes. Excess tax may be deducted; May have to claim a refund when filing ITR for FY2025-26 A salaried individual may find that he/she can save more tax under the old tax regime. However, if the employee didn't inform his/her employer about the chosen tax regime for TDS deduction on salary, then higher tax will be deducted from salary, and the salaried individual will have to claim an income tax refund when filing ITR for FY2025-26. Further, money will be stuck with the income tax department till the salaried individual files an ITR next year to claim a refund, and they accept the same after the processing of the income tax return. However, if an employee finds that he/she would pay less tax under the new tax regime and prefers to choose it over the old regime, then the employee won't lose out by not informing the employer. This is because if the employee doesn't inform the employer of his/her choice then he/she would get the new tax regime by default anyway. Even so, it is always better to inform the employer of one's choice of tax regime. Can you change the tax regime during the financial year? The CBDT's 2023 circular remains silent on whether salaried individuals can change their tax regime for the purpose of TDS from salary during a financial year. According to tax experts, the decision to allow employees to change their tax regime in the middle of a financial year rests with the employer. Usually, it is seen that the employers do not give employees the option to switch tax regimes during a financial year, as it complicates the calculation of taxes under different regimes and the corresponding tax deductions. What if you change jobs during a financial year? During a financial year, a salaried employee may switch jobs. However, if he had opted for the old tax regime with the old employer, can he select the new tax regime with the new employer or vice versa? Tarun Kumar Madaan, a practising chartered accountant, says, "You can switch tax regimes when changing employers. Each employer uses your declaration to deduct TDS based on your preferred tax regime at that point in time. There is no restriction on informing your new employer of a different regime, even within the same financial year. The declaration to employers is solely for TDS purposes. When you join a new company, you are required to fill out a declaration form to indicate your preferred tax regime for salary processing and TDS calculations. This choice is independent of what you selected with your previous employer." Madaan further states, "Switching regimes mid-year, however, can create some complexities. Your old employer might have deducted TDS according to the old regime, while your new employer will calculate TDS based on the new regime. If an employee changes jobs during the year, they should provide their current employer with the details of their salary income from the previous employer, along with the tax that has already been deducted, so that taxes can be deducted appropriately by the current employer. Therefore, the new employer will consider your previous salary and the taxes already deducted when calculating your remaining tax liability." "You should share your full salary and TDS details from your old employer; relieving documents usually contain this information. Clearly communicate your tax regime change to your new employer's payroll team. Review your tax projection mid-year to ensure you're on track. The final selection of the tax regime for the entire year is made when you file your income tax return (ITR). When filing your ITR, you have the flexibility to choose either the old or new regime, regardless of what you declared to one or more employers during the year," Madaan adds. Deductions under the new tax regime for salaried employees Under the new tax regime, your employer will offer you two tax saving deductions-a standard deduction of Rs 75,000 and the employer's contribution to the NPS account (if opted earlier). A deduction of 14% of the basic salary will be deposited into the NPS account under the new tax regime.
