Banks can penalise you for premature withdrawal of FDs

I had invested in a fixed deposit of a nationalised bank in November 2009. At that time the rate of interest was 7.25% for three years. Now the rates have gone up to 9.25%. So I decided to dilute my investment before the stipulated period & reinvest at the new rates. But to my surprise the bank has charged me 1% penalty for the same and the rate of interest also was not considered at 7.25% but 6.75 % since that was supposed to be the rate for a period less than two years at that time. So overall I have received an interest rate of only 5.75 % for a period of 1.5 years on my investment. Is this correct? If no, whom should I approach to get this corrected?  — CV Tagare
The Reserve Bank of India instructions are that the bank will have the freedom to determine its own penal interest rate for premature withdrawal of term deposits. The bank should ensure that the depositors are made aware of the applicable penal rate along with the deposit rate. While prematurely closing a deposit, interest on the deposit for the period that it has remained with the bank will be paid at the rate applicable to the period for which the deposit remained with the bank and not at the contracted rate. No interest is payable where premature withdrawal of deposits takes place before completion of the minimum period prescribed. These instructions are followed by the banks, hence, the interest paid to you by your bankers is correct. Some banks, however, do not charge penalty for premature withdrawal.

I have purchased a new property at Panvel and have registered with the registrar’s office. Is the amount spent on registration fees and stamp duty exempted from income tax under Section 24 of Income Tax Act, 1961? — Pramod Kadam
You have not clarified whether the property has been acquired out of borrowed funds or out of your own resources. Nevertheless the position is as under:

Section 24 of the I-T Act deals with deductions from income from the house property. A plain reading of this section says that (1) income chargeable under the head “Income from house property” shall, subject to the provisions of sub-section (2), be computed after making the following deductions, namely:

(i) In respect of repairs of, and collection of rent from, the property, a sum equal to one-fourth of the annual value; (ii) The amount of any premium paid to insure the property against risk of damage or destruction; (iv) Where the property is subject to an annual charge, (not being a charge created by the assessee voluntarily or a capital charge), the amount of such charge; (v) Where the property is subject to a ground rent, the amount of such ground rent; (vi) Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital;

Explanation: Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as a deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years, etc.

The writer is chief counsellor, Abhay Credit Counselling, a trust sponsored by Bank of India. He will answer credit card and loan queries and can be reached at dnadebtqueries@gmail.com