Fixed Deposits (FDs) are a well-known investment choice for senior citizens, furnishing them with a safe way of generating regular income. But, it is important for senior citizens to acknowledge the tax implications of the interest gained from these FDs. In this article, we will understand the tax guidelines and standards surrounding FD interest for senior citizens in India.
How is FD Interest for Senior Citizens Taxed?
The interest earned from FDs is considered ‘income from other sources for senior citizens. It is added to their total income for the financial year and taxed according to the applicable income tax slab.
Income Tax Slabs for Senior Citizens
For the assessment year 2023-2024, senior citizens in India are individuals who are 60 or above. The income tax slabs for senior citizens for this financial year are as follows:
● Income up to Rs 3,00,000: No tax
● Income between Rs 3,00,001 and Rs 5,00,000: 5% of the income exceeding Rs 3,00,000
● Income between Rs 5,00,001 and Rs 10,00,000: 20% of the income exceeding Rs 5,00,000 + Rs 10,000
● Income above Rs 10,00,000: 30% of the income exceeding Rs 10,00,000 + Rs 1,10,000
Section 80 TTB Deduction
In order to provide tax relief to senior citizens, the Indian government introduced Section 80 TTB within the Income Tax Act. According to this section, senior citizens are eligible to claim a deduction of up to Rs 50,000 on the interest earned from the following sources:
● Deposits with banks
● Deposits with cooperative societies engaged in the business of banking
● Deposits with post offices
This deduction is applicable for both FDs and savings account interest.
Tax Deducted at Source
Banks are required to deduct Tax Deducted at Source (TDS) on interest income earned from FDs. However, for senior citizens, the threshold for TDS deduction is higher than for others. As of the current regulations, TDS is deducted only if the interest income exceeds Rs 50,000 in a financial year. Senior citizens can submit Form 15H to the bank to avoid a TDS deduction if their total income is below the taxable limit.
Rules and Regulations of TDS on FD
● TDS on FD is applicable only if the interest earned on your FD exceeds a certain threshold in a particular financial year. In other words, only the interest amount that exceeds the specified limit is subject to taxation.
● When you have an FD in a bank or financial institution, they are responsible for deducting TDS at a rate of 10% on the interest earned during the fiscal year.
● If you have an FD and fail to provide your Permanent Account Number (PAN) information related to the account, a higher TDS rate of 20% will be applied to the interest amount.
● In the case of a joint FD account, TDS will be deducted based on the PAN information of the primary account holder. The secondary account holder is not liable for any TDS deductions related to the FD.
● At the closing of each financial year, your bank or financial institution will deduct TDS on FD automatically.
● Even the interest earned from tax-saving FDs is subject to a TDS deduction.
Mr. Ramesh holds two FDs in a bank, each amounting to Rs 2.5 lakh. He earns a 9% interest rate for three consecutive years.
The annual interest earned on each FD is Rs 22,500, resulting in a total interest of Rs. 45,000 for both FDs.
Over the 3 years, the total interest earned on both FDs amounts to Rs 1,35,000, with Rs 45,000 accrued per FD.
The interest earned on FD and the TDS applied to it will be charged 10%.
Hence, 10% of Rs. 45,000 equals Rs. 4,500.
Ramesh will have to pay Rs 4,500 per year as TDS on the interest earned from his FDs.
Understanding Form 15 G and 15 H
Form 15G is like a declaration form you can submit if you haven’t earned enough to pay any taxes in a particular year. It’s for those younger than 60 years who make less than Rs 2.5 lakh annually. This form exempts them from paying income tax. When you submit this form, you can request the bank not to deduct any TDS on the interest earned from your FDs.
Form 15H serves a similar purpose, but it’s specifically for senior citizens who are 60 or older. If you’re a senior citizen with an annual income below Rs. 3 lakhs, you can use Form 15H to claim an exemption from TDS on your FD interest. However, please note that the eligibility for a TDS deduction may vary depending on your income and tax situation.
How to Minimise TDS on FD
● Consider opening an FD at your nearest post office, as such investments do not attract TDS on FDs.
● If your yearly income is less than Rs 2.5 lakh (for individuals below 60) or Rs 3 lakh (for individuals above 60 years), you can submit Form 15H or 15G to avail of an exemption from TDS on FD interest.
● TDS on FDs is calculated based on your total annual income. You can open FD accounts in their names if your spouse or children do not earn or have earnings below Rs 2.5 lakh. However, it is advisable to consult your bank or a finance professional before proceeding.
● Consider diversifying your investments by opening accounts in different banks, as this may help reduce or save TDS on FDs.
● Before investing, carefully understand the workings of TDS on FDs and make an informed decision.
By staying informed and seeking advice from financial experts, senior citizens can make well-informed decisions about their FD investments and ensure their financial well-being in retirement. tds on fixed deposit for senior citizens is often higher than the rates offered to regular customers. Many banks and financial institutions provide attractive interest rates to senior citizens to support them during their retirement phase.