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Today, we will learn about Recurring Deposit Accounts, which allow individuals to save regularly. Can anyone tell me what 'recurring' means?
It means something that happens repeatedly!
Exactly! In this case, you deposit a fixed amount every month. Now, do you know the formula to calculate the interest on those deposits?
Is it that formula with P, n, and r?
Yes! The interest is calculated using: \( I = \frac{P \times n(n+1) \times r}{2 \times 12 \times 100} \). Remember, P is your monthly deposit, n is the number of months, and r is the annual interest rate. Can you see how these variables impact interest?
If I increase P, does that increase my interest?
That's correct! Higher deposits lead to higher interest. Can anyone summarize this formula?
More deposit and more months mean more interest!
Great summary! Let's move to the next formula for maturity value.
Now that we know how to calculate the interest, let’s discover how to find the Maturity Value. Who can remind us of the formula?
Is it \( MV = P \times n + I \)?
Exactly! It combines both your deposits and the interest earned. Who can give an example based on this formula?
If I deposit 1,000 rupees every month for 12 months, and the interest is 520, the maturity value would be 12,520.
Absolutely correct! That’s how we calculate it. Does anyone have questions about how these numbers come together?
What happens if I want to increase the number of months?
Good question! More months will definitely increase your maturity value and interest. Can anyone summarize what we learned today?
The more we deposit each month and the longer we save, the more money we will have at the end!
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In this section, we explore key formulas used in banking, particularly focusing on interest calculation and maturity values in Recurring Deposit Accounts. These formulas are essential for understanding how deposits earn interest over time.
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● GST = Taxable Amount × GST Rate
The Goods and Services Tax (GST) is calculated based on the taxable amount and the GST rate. The formula essentially means that to find out how much GST you need to pay, you multiply the cost of the goods or services (the taxable amount) by the percentage that represents the GST rate. For example, if you have products worth ₹10,000 and the GST rate is 18%, the GST amount is ₹10,000 × 0.18 = ₹1,800.
Imagine you want to buy a new smartphone that costs ₹20,000 and the GST is 18%. To find out how much tax you’ll pay, you would calculate ₹20,000 × 0.18, giving you a GST of ₹3,600. This is similar to paying extra on top of the base price for features or services.
● Final Price = Cost Price + GST
To arrive at the final price that a buyer pays for a product, you start with the cost price of the product and add the GST amount calculated using the previous formula. This means you are essentially taking the base price of the item and including the tax to find out what you will actually pay at checkout. For instance, if the cost price is ₹10,000 and the GST calculated is ₹1,800, the final price will be ₹10,000 + ₹1,800, which totals ₹11,800.
Think of it like planning a trip. If the ticket to your destination costs ₹5,000, and you know that there are additional fees (GST) of ₹900, your total travel expense becomes ₹5,900. You can't forget the extra fees, just like you can’t ignore GST when shopping!
● Input Tax Credit (ITC): Credit received for tax paid on purchases.
Input Tax Credit (ITC) is a mechanism under GST that allows businesses to reduce the tax they have already paid on inputs (purchases) from their final tax liability. This means that if a business pays GST when purchasing goods, it can claim that amount back when calculating how much GST it owes when selling those goods. This helps avoid double taxation, as businesses essentially only pay tax on the value they add to goods and services.
Consider you own a bakery. You buy flour and sugar and pay ₹500 in GST as part of your ingredients' cost. When you sell cakes, if you collect ₹800 in GST from your customers, you can deduct the ₹500 you previously paid on your ingredients. This way, you only pay the government the difference of ₹300.
● Net GST Payable = Output GST – Input GST
The net GST payable is calculated by subtracting the Input GST from the Output GST. Output GST is what you collect from customers when you sell products, while Input GST is what you have paid on purchases. If the Output GST is higher than the Input GST, you pay the difference as tax to the government. This formula ensures that businesses only pay GST on the value they add, not on the entire transaction value, preventing double taxation.
Think of it like running a lemonade stand. If you buy lemons and sugar for which you paid ₹100 in GST but sell your lemonade and collect ₹200 in GST from customers, you would need to pay ₹200 - ₹100 = ₹100 as GST to the government. You're only paying tax on the profit, not on the total sales.
A shopkeeper buys goods worth ₹10,000 at 18% GST and sells them for ₹15,000. ● Input GST = ₹10,000 × 18% = ₹1,800 ● Output GST = ₹15,000 × 18% = ₹2,700 ● Net GST = ₹2,700 – ₹1,800 = ₹900
In this example, the shopkeeper first calculates the Input GST on the purchases. He buys goods worth ₹10,000, and the GST at 18% equals ₹1,800. When selling the same goods for ₹15,000, the Output GST collected is ₹2,700. To find out how much the shopkeeper needs to pay to the government, he takes the Output GST and subtracts the Input GST: ₹2,700 (Output) - ₹1,800 (Input) = ₹900. This amount, ₹900, is what he will pay as GST.
Imagine a friend who runs a bookstore. He buys books worth ₹10,000 and pays ₹1,800 in tax when buying them. Later, he sells those books for ₹15,000, collecting ₹2,700 in tax from customers. At the end of the month, he only owes ₹900 in tax to the government. This makes sure he pays tax only on what he earns from his sales.
Learn essential terms and foundational ideas that form the basis of the topic.
Key Concepts
Recurring Deposit Account: A savings option encouraging regular savings.
Interest Calculation: Determining earnings based on principal and interest rate.
Maturity Value: The total amount received including deposits and interest.
See how the concepts apply in real-world scenarios to understand their practical implications.
If a person deposits ₹1,000 every month for a year at an 8% interest rate, the interest would be calculated using the formula provided, ultimately leading to a maturity value.
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For savings that bloom, deposits that loom, interest and value will make your gains zoom!
Imagine a clever squirrel, every month, it buries nuts (deposits) in different spots, at the end of the year, it forgets where but finds a treasure of nuts (interest) to enjoy!
Remember PRINCE: Principal, Rate, Interest, Number of months, Calculation, Earned!
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Term
What is the formula for Maturity Value?
Definition
What does RD stand for?
Review the Definitions for terms.
Term: Recurring Deposit Account (RD)
Definition:
A savings account where a fixed sum is deposited every month for a fixed period.
Term: Interest (I)
The amount earned on the deposits over time, calculated based on the principal, duration, and interest rate.
Term: Maturity Value (MV)
The total amount that will be received at the end of the deposit period, including both the principal and the interest earned.
Flash Cards
Glossary of Terms