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What are the Tax Implications on Corporate Fixed Deposits?

Updated: Dec 21, 2023

Corporate Fixed Deposit

Corporate Fixed Deposits (CFDs) are investment instruments where individuals invest a lump sum amount in fixed deposits issued by non-banking financial companies (NBFCs) or corporate entities. These deposits are similar to the traditional Fixed Deposits (FDs) offered by banks but come with certain distinctions. Tax Implications on Corporate Fixed Deposits are as under.


Tax Implications on Corporate Fixed Deposits


1. Differences from Bank FDs:

- Issuer: Corporate FDs are offered by non-banking entities, while Bank FDs are issued by banks.

- Risk: Corporate FDs often carry higher risk compared to Bank FDs as they are not insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

- Interest Rates: Corporate FDs may offer higher interest rates than Bank FDs, but they are subject to market conditions and the financial health of the issuing company.


2. Tax Implications on Corporate Fixed Deposits:

a. Interest Income Taxation:

- Taxable Income: The interest earned on corporate fixed deposits is considered taxable income.

- Income Tax Slab Rates: The interest income is added to the investor's total income and taxed at the applicable income tax slab rates.


b. TDS (Tax Deducted at Source):

- TDS Applicability: If the interest income from corporate fixed deposits exceeds Rs. 5,000 in a financial year, TDS is applicable.

- TDS Rate: The TDS rate is 10%, and it is deducted by the company before paying the interest to the investor.


c. Form 26AS:

- TDS Certificate: The TDS deducted on interest income is reflected in Form 26AS, which is a consolidated tax statement.


d. TDS Exemption for Senior Citizens:

- Form 15H: Senior citizens can submit Form 15H to the company to claim TDS exemption if their total income is below the taxable limit.


e. TDS Exemption for Non-Resident Indians (NRIs):

- Form 15G: Non-Resident Indians (NRIs) can submit Form 15G to declare that their total income is below the taxable limit and seek TDS exemption.


f. Tax on Accrued Interest:

- Tax Year: Interest accrued on corporate fixed deposits is taxable in the year it accrues, even if it is not received. It must be declared in the income tax return for that specific year.


g. Tax on Interest at Maturity:

- Tax Year: The interest earned at maturity is also taxed in the financial year in which it matures and becomes payable.


h. Section 80C Deduction:

- Lock-in Period: Investments in certain corporate fixed deposits with a lock-in period of 5 years or more may qualify for deduction under Section 80C of the Income Tax Act, up to a maximum limit of Rs. 1.5 lakh.


i. Tax on Premature Withdrawal:

- Form 15G/15H (if applicable): TDS may be applicable on premature withdrawal, and investors can submit Form 15G/15H to seek an exemption if their total income is below the taxable limit.


3. Comparison - Corporate FDs vs. Bank FDs:

- Risk Tolerance: Individuals with a higher risk tolerance may opt for Corporate FDs for potentially higher returns.

- Safety: Bank FDs are considered safer due to government-backed insurance, making them suitable for conservative investors.


4. Sectors Offering High-Interest Rates in Corporate FDs:

- Public Sector: Public sector companies may offer competitive interest rates, and their stability can be appealing.

- Private Sector: Private sector companies, especially those with a strong credit rating, may provide attractive interest rates.

- Small Finance Banks and NBFCs: These entities might offer higher interest rates due to their focus on niche markets and diverse financial products.


Advantages of Corporate Fixed Deposits:


1. Returns in Dynamic Markets:

CFDs stand out for their potential to deliver returns that surpass those of traditional Bank Fixed Deposits, especially during periods of market volatility and unpredictability.


2. Flexibility in Tenure and Investment Size:

Experience a new level of financial freedom with CFDs, where you can craft your investment journey. Choose tenures aligning with your financial aspirations, ranging from a short 3 months to a substantial 10 years. Likewise, tailor your investment size, starting from as low as Rs. 5,000 to a lofty Rs. 1 crore or beyond.


3. Diverse Payout Options for Interest Income:

Enjoy the luxury of choice with CFDs, providing a spectrum of payout options for your interest income. Whether you favor the allure of compounding with the cumulative option or the steady flow of regular payouts through the non-cumulative option, the power is in your hands.


Challenges of Corporate Fixed Deposits:


Higher Risk:

The captivating world of CFDs comes with the reality of higher risk compared to their bank counterparts. Without the safety net of DICGC insurance, these investments demand a careful risk assessment from potential investors.



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