To beat rate of inflation and earn positive real returns from your investments, it is suggested to take some exposure in market-related instruments such as mutual funds etc. Nonetheless, if you are a conservative investor who cannot afford capital erosion by any chance, safe FDs with assured returns is the best choice. Also, in the rising interest rate regime as in the present case wherein two consecutive repo rate hikes have been implemented by the Reserve Bank of India, these debt instruments fetch still higher returns.
More so, senior citizens prefer FDs over other investment assets due to the ease of transaction, higher returns as well as taxation benefits. Also, periodic income can be earned on these deposits depending on the chosen mode of interest payment i.e. monthly, quarterly, half-yearly or cumulative mode.
Here are listed the different benefits FDs offer to senior citizens aged 60 years and above:
Higher rate: Most of the banks offer higher interest rate to senior citizen category by 50 basis points. One basis point is one-hundredth of a percentage point. For instance, even before the RBI hiked repo rate during its August monetary policy review meet, State Bank of India revised interest rates higher on FDs with effect from July 31, 2018, so a FD made with SBI offers 6.85% interest rate to individuals and 7.35% to senior citizens.
No TDS for annual interest earned up to Rs. 50,000: TDS or tax is deducted at source by banks on interest income on fixed deposits if interest exceeds Rs.10,000 in a year. However as per the changes to the Income Tax Act, senior citizens will not be charged TDS if the interest income on FDs is less than Rs. 50,000 in a financial year. So, for interest income higher than this threshold value, banks will deduct TDS on the entire interest income.
TDS @ 10% is charged where the depositor has provided his or her Permanent Account Number or PAN else banks deduct TDS @ 20%. So, from the beginning of the new financial year i.e. April 1, 2018, in case the interest amount accrued to the senior citizen on FD on an annual basis is Rs. 49,500, no TDS shall be deducted, however if the same is Rs. 52,000, TDS @ 10% on 52,000 i.e. Rs. 5200 will be deducted by the bank.
Do note, in case your total tax liability for the given financial year is less than what you have paid, the same came can be claimed as refund amount while filing the tax return.
Deduction on interest from all bank deposits upto Rs. 50,000 under new sub-section 80TTB
Section 80TTA of the Income Tax Act exempts interest earnings upto a maximum of Rs. 10,000 on bank savings account. Previously, this exemption was also available to senior citizens aged over 60 years. But Union Budget 2018-19 included a new sub-section 80TTB as per which senior citizens who are resident of India can claim deduction up to Rs. 50,000 on interest earned from bank deposits.
It is to be noted that under section 80TTA, senior citizens were previously allowed interest exemption in respect of only bank savings account but under the new sub-section interest from all bank deposit accounts will be exempted.