The main function of the banks is to mobilise deposit from public and lend that deposit to individual, firms and corporate institutions. Banks offers various types of deposit products which can be broadly classified as Demand Deposits and Term/Time Deposits. Difference between Demand Deposits and Term/Time Deposits are as follows.
|Demand Deposits||Term or Time Deposits|
|Payable on demand||Fixed for a definite term or time|
|Low interest or no interest paid. It also called CASA or Low cost deposit.||High rate of interest, Vary as per deposit tenure.|
|It includes SB deposit, Current Deposit, Unclaimed Deposit, Overdue TDR, Credit balance in CC and OD accounts||It includes all term deposits includes RD, FDR for the period of Minimum 7 days to maximum 10 years.|
|Interest on savings account is calculated on a daily basis. Banks are free to pay interest half yearly or quarterly basis.||Generally, interest is compounding and payable quarterly.|
A current account is always a Demand Deposit and the bank is obliged to pay the money on demand. These deposits are the most liquid deposits and there are no limits for number of transactions or the amount of transactions in a day. Current Accounts are basically meant for businessmen and are never used for the purpose of investment or savings. Most of the current account are opened in the names of firm / company accounts. Cheque book facility is provided and the account holder can deposit all types of the cheques and drafts in their name or endorsed in their favour by third parties. No interest is paid by banks on these accounts. On the other hand, banks charges certain service charges, on such accounts.
These deposits accounts are one of the most popular deposits for individual accounts. These accounts not only provide cheque facility but also have a lot of flexibility for deposits and withdrawal of funds from the account. Savings deposits are subject to restrictions on the number of withdrawals as well as on the amounts of withdrawals during any specified period. From 25th October, 2011, RBI has deregulated Saving Fund account interest rates and now banks are free to decide the same within certain conditions imposed by RBI. Minimum balances may be prescribed in order to offset the cost of maintaining and servicing such deposits. Savings deposits are deposits that accrue interest at a fixed rate set by the commercial banks. The interest amount earned in savings account must be filed for Income Tax Returns as Income from other sources. But, TDS is not applicable for a savings account as per section 194 A of IT Act. Savings Bank Account Interest amount exceeding Rs. 10, 000 will be taxed at marginal tax rate of the concerned account holder. Under directions of RBI, now banks are also required to open Small accounts.
Small Account: In case an individual customer who does not possess any of the OVDs and desires to open a bank account, banks shall open a ‘Small Account’, which entails the following limitations:
- the aggregate of all credits in a financial year does not exceed rupees one lakh;
- the aggregate of all withdrawals and transfers in a month does not exceed rupees ten thousand; and
- the balance at any point of time does not exceed rupees fifty thousand.
- Provided, that this limit on balance shall not be considered while making deposits through Government grants, welfare benefits and payment against procurements.
Further, small accounts are subject to the following conditions:
(a) The bank shall obtain a self-attested photograph from the customer.
(b) The designated officer of the bank certifies under his signature that the person opening the account has affixed his signature or thumb impression in his presence.
Term deposits are fixed for a definite term. Minimum period as per RBI is 7 days. Maximum period as per IBA is 10 years. Features of Term Deposits are as under:
- Accounts may be opened by individuals, firms or corporates.
- Term deposits receipts are not transferable.
- Amount is payable on maturity. The interest is cumulative on quarterly rests.
- Interest rate on term deposits is decided by Asset Liability Management Committee of the bank.
- If due date of term deposit is on a holiday, banks will make payment on next working day or thereafter and will pay the interest for the holiday to depositor at contracted rate irrespective of when the payment is taken.
- Depositor can request for addition or deletion of names in the deposit but at least one of the original depositors must remain. if loan has been raised against term deposit, name of a minor can be added only when loan has been adjusted.
- If interests paid on term deposit is more than Rs. 10000 or above in a financial year, TDS is deducted @10% if PAN is submitted and @20% if PAN is not submitted. If 15G/H along with PAN is submitted by individual, TDS will not be deducted by bank.
- As per Section 269 T of income Tax Act, if the principal plus interest of term deposit is Rs 20,000 or above, the payment should be made through credit to account or issuing account payee cheque or DD. It should not be paid in cash.
- In case of premature payment of FDR, penalty may be decided by the bank. Many banks has removed penal charge on premature closure of TDR. However, penalty cannot be charged in case of premature payment in case of death of depositor.
- In case of death of depositor, interest for overdue period will be paid at saving rate if depositor died after maturity date. if depositor dies before maturity of FDR, interest for overdue period will be paid at FD rate as on date of maturity for the period overdue amount remained with the bank.
- FDR can be renewed on due date even in the absence of FDR. It will be renewed for the period indicated by customer. If no period is indicated, it will be renewed for a term equal to the original term.
- Term deposits are classified into various schemes such as:
- Fixed Deposit (Interest payable every 6 months),
- Monthly Interest Deposit (Interest payable monthly),
- Quarterly Interest Deposit (Interest payable quarterly),
- Short-Term Deposits (Period of deposit minimum 7 days to less than one year)
- Recurring Deposit (Equal monthly instalment deposited for minimum 6 months to maximum 120 months)
- Flexi Recurring Deposit (In addition to monthly installment (Core Deposit) an option to deposit excess amount as per bank’s scheme during the stipulated tenure.
Foreign Currency Accounts by Resident and Non-Resident Persons in India
The Reserve Bank of India (RBI) is the regulator of foreign exchange dealings in India. It prohibits, restricts, and regulates the opening, holding and maintaining of foreign currency accounts, and the limits up to which a person resident in India can hold the amount in such accounts.
These regulations are known as Foreign Exchange Management (foreign currency accounts by a person resident in India) (FEMA) Regulations, 2015 and contain separate provisions for resident and non-residents.
According to FEMA, a resident individual is a person who has been in India for more than 182 days in the preceding financial year. However, there are a few exceptions as under:
- A person who has come to, or stays in India, only for taking up employment or to carry on any business, or with an intention to stay in India for an uncertain period; he or she will be treated a resident in India.
- A person who has gone outside India for taking up employment or to carry out any business outside India for an uncertain period; he or she will be treated as a non-resident.
The following persons (other than individuals) are treated as person resident in India:
- Person or body corporate which is registered or incorporated in India;
- An office, branch or agency in India, even if it is owned or controlled by a person resident outside India; or
- An office, branch or agency outside India, if it is owned or controlled by a person resident in India.
The FEMA regulations allow a resident to remit an aggregate sum of US$250,000 per financial year (April 1 to March 31) for any permissible current account or capital account transaction under the Liberalized Remittance Scheme (LRS) without any approval from RBI. The LRS is a scheme established by the RBI to grant permission to citizens of India to transfer funds abroad for permitted current or capital account transactions or for both.
Here, the types of foreign currency accounts that can be opened, maintained and held by resident and non-resident individuals in India.
- Non-Resident (External) Rupee Account- NRE Account,
- Non-Resident Ordinary Accounts (NRO),
- Foreign Currency (Non-resident) Account (Banks) Scheme – FCNR (B) Account,
- Exchange Earners’ Foreign Currency Account,
- Resident Foreign Currency (Domestic) Account.