Senior Citizens Pay Over £27k Cr in Taxes on FD Interest, Says SBI Report

In a significant revelation by researchers at the country's largest lender, State Bank of India (SBI), the government has reportedly collected over Rs 27,000 crore in taxes from senior citizens for the interest accrued on term deposits during the last fiscal year. This collection underscores the growing trend among senior citizens to invest in fixed deposits, driven by attractive interest rates.

Representative image

The comprehensive report by SBI researchers highlights a staggering 143 per cent increase in the total amount of deposits over the past five years, reaching Rs 34 lakh crore at the end of FY24, up from Rs 14 lakh crore. This surge is attributed to high-interest rates, which have significantly boosted senior citizens' interest in fixed deposits. Consequently, the total number of term deposit accounts has witnessed an 81 per cent growth, amounting to 7.4 crore in the same period.

Delving deeper into the data, it was estimated that at least 7.3 crore of these accounts hold a balance exceeding Rs 15 lakh. With an assumed interest rate of 7.5 per cent, senior citizens have garnered a whopping Rs 2.7 lakh crore in FY24 as interest income alone. This figure includes Rs 2.57 lakh crore from bank deposits and the remainder from the Senior Citizen Saving Scheme.

Based on an average tax rate of 10 per cent paid by senior citizens across various cohorts, the government's tax revenue from this segment is calculated to be around Rs 27,106 crore. The report also notes a significant shift in the share of incremental term deposits held by senior citizens, which has doubled to 30 per cent from 15 per cent five years ago.

This remarkable increase in deposit rates and the higher interest rate differential for senior citizens, coupled with special deposit schemes, have collectively contributed to a substantial growth in deposit accumulation among this demographic. Additionally, the government's decision to raise the threshold for tax deducted at source (TDS) on deposits for senior citizens to Rs 50,000 has further encouraged deposit mobilisation.

The latter half of FY24 saw some banks aggressively seeking deposits amid fluctuating liquidity conditions, leading to an increase in deposit rates despite the Reserve Bank of India (RBI) maintaining its rate since February 2023. This scenario has prompted a noticeable change in depositor behaviour, with a marked preference for capitalising on interest rate differentials between core and term deposits. As a result, the incremental share of term deposits surged to 93 per cent while that of low-cost current and saving accounts dipped to 7 per cent in FY24.

This data not only sheds light on the evolving financial landscape for senior citizens but also underscores the impact of policy decisions and market dynamics on savings and investment patterns across different age groups.