Senior Citizen,Fixed Deposits and Tax

My father/mother is retired. He has a fixed deposit with a bank interest of Rs 50,000 a year. Does he need to file his income tax return? Is there any way he could be exempted from taxes?

We regularly get queries like above. Fixed Deposits are very popular among retirees and FDs feature in almost every senior citizens investment portfolio.  The advantages are:

  • It offers a high degree of safety to funds and
  • Fixed returns and  banks provide senior citizens with 0.25 % to 0.50 % extra interest rates
  • It also provides a good degree of liquidity as FDs can be broken at fairly low penalty rates.

But..the cons

  • Interest from Fixed Deposit is fully taxable.
  • TDS(Tax is deducted at Source) if interest from a FD exceeds 10,000 Rs. TDS is deducted at rate of 10%.

As interest from Fixed Deposit is taxable, this needs to be added to the Senior Citizen income. If total income for a senior citizen exceeds the exemption limit ( the income on which senior citizen does not have to pay tax) then senior citizen is required to pay tax. But if the income of the senior citizen is less than the exemption limit then senior citizen has two choices :

  1. Ask the bank not to cut TDS by submitting filled form 15H (pdf)  to bank every April.
  2. If TDS has been deducted ask for refund.

In this article we shall discuss  who is Senior Citizen and Very Senior Citizen, tax slabs for Senior Citizens, Fixed Deposits for Senior Citizens, Form 15H to avoid TDS, show interest in Income Tax Return and how to fill ITR  form for refund.

Who is Senior Citizen?

From Income tax perspective (as fro FY 2012-13)  there are two categories of Senior Citizens:

  • Senior Citizen : For age of 60-80 years
  • Very Senior Citizen : Above 80 years

Under the Income Tax Act, a senior citizen is a person who at any time during the previous year has attained the age of 60 years or more  i.e for a person who is  of age 60 but less than 80 years on end date of financial year (for 2012-13  is 31-Mar-2013) will be considered as senior citizen for that Financial Year. So

  •  A person who is of age between 60-80 years on 31st Mar 2013(including 31st Mar) will be considered as Senior Citizen for FY 2012-13 or Assessment Year 2013-14.
  • A person who is  above 80 years on 31st Mar 2013(including 31st Mar) will be considered as Senior Citizen for FY 2012-13 or Assessment Year 2013-14.

The age for Senior Citizen(and Very Senior Citizen) and the various tax slabs are announced in Budget every year.Before Financial year(FY) 2010-11 or Assessment Year 2011-12 the age limit for being considered a senior citizen was 65 Years. FY 2011-2012 also introduced Very Senior Citizen Category!(Ref LiveMint) Tax slabs for FY 2012-13(AY 2013-14) is as follows .( Our article Understanding Income Tax Slabs,Tax Slabs History discusses Tax slabs etc in detail)

TAX MEN and WOMEN SENIOR CITIZEN(Between 60 yrs to 80 yrs) For Very Senior Citizens(Above 80 years)
Basic Exemption 200000 250000 500000
10% tax 200001 to 500000 250001 to 500000 -
20% tax 500001 to 1000000 500001 to 1000000 500001 to 1000000
30% tax above 1000000 above 1000000 above 1000000
Surcharge  There is no surcharge in the case of every individual, Hindu undivided family, Association of persons and body of individuals
Education Cess  3% on Income-tax plus Surcharge.

So tax for Senior Citizen works out as follows: He/She does not have to pay tax if his/her income is less than 2.5 lakh (50,000 more than Men/Women below 60 years)

  • Pay 10.3% of tax on income between 2.5 lakh to 5 lakhs
  • Pay 20.6% of tax on income between 5 lakh to 10 lakhs Ex: for income of 7 lakh he will
  • Pay 30.9% of tax on income above 10 lakhs

Examples:

  • For income of 3 lakh he will need to pay 10.3% of tax on income exceeding 2.5 lakh i.e 10.3% on 50,000 =5,150
  • For income of 8 lakh he will  need to pay 10.3% of tax on income of 2.5 lakh(10.3% on 2,50,000 =25,750) + 20.6% on income exceeding 5 lakh(20.6% of 3 lakh = 61800) i.e 87,550
  • For income of 12  lakh he will  need to pay 10.3% of tax on income of 2.5 lakh(10.3% on 2,50,000 =25,750) + 20.6% on income of 5 lakh(20.6% of 5 lakh = 1,03,000)  and 30.9% of income exceeding 10 lakh (30.9% of 2 lakh =61800 ) i.e 1,90,550

Age, Basic Exemption Limit, Slabs keep on changing with time. For example  For Financial year 2010-11 or Assessment Year 2011-12, age of senior citizens was 65 and income tax slabs were as follows.

TAX MEN WOMEN SENIOR CITIZEN
Basic Exemption 160000 190000 240000
10% tax 160001 to 500000 190001 to 500000 240001 to 500000
20% tax 500001 to 800000 500001 to 800000 500001 to 800000
30% tax above 800000 above 800000 above 800000
Surcharge  There is no surcharge in the case of every individual, Hindu undivided family, Association of persons and body of individuals
Education Cess  3% on Income-tax plus Surcharge.

Earlier there was a big confusion on age of  senior citizen by different organizations . For example Union ministry of Social Justice and Empowerment defined a senior citizen as someone who is 60, but the income tax department allows benefits for the category only after 65 while an insurance company considered a person who is 55 as a senior citizen. Ref:When do you become a senior citizen?  MoneyControl Various Benefits a Senior Citizen Can Avail

Advantages to Senior Citizens

Other Facilities offered to Senior Citizens are:

  • Banks offer a higher rate of interest on fixed deposits to senior citizens. The offering is 0.5-0.75% more than the prevalent interest rates. The minimum age to get a premium on your deposit is 60.
  • A Senior Citizens Savings Scheme offering an interest rate is 9% per annum on the deposits made by the senior citizens in post offices has been introduced by the Government.
  • The Ministry of Railways provides 40% fare concession to men above 60 years and 50% concession to women above 58 years in all all classes, all  trains including Rajdhani, Shatabadi, Jan Shatabadi . The Indian Railways also have the facility of separate counters for senior citizens for purchase or cancellation of tickets. Ref:.indianrailways.gov.in Concession Rules, indianrailways.gov.in list of categories  (pdf)
  • The Ministry of Road Transport and Highways mandates the reservation of two seats for senior citizens in front row of the buses of the State Road Transport Undertakings. Some state governments give fare concessions to senior citizens in the State Road Transport Undertaking buses and have introduced bus models that are convenient to the elderly.
  • Indian Airlines provides 50 per cent Senior Citizen Discount on Normal Economy Class fare for all domestic flights to Indian senior citizens who have completed the age of 63 years  ubject to certain conditions. Ref: AirIndia Webpage
  • JetLite offers Senior Citizens (65 years and above) concession on basic adult fare in Economy class, on all domestic sectors operated by JetKonnect. To avail of this concession, you have to fill the “Concession Form” and submit it along with a photograph and proof of age  More details at JetLite webpage Concessional Fares

Concessions and Facilities given to Senior Citizens  has information on benefits to Senior Citizens.

Senior Citizens and Advance Tax:In Union Budget 2012 it was proposed that senior citizens, who do not have any income from a business, would be exempted from payment of advance tax. Advance tax is applicable on all individuals, salaried or otherwise, with an advance tax liability of Rs 10,000 or more earned during a fiscal year. Normally, in case you owe advance tax(means you had to pay and you didn’t) you have to pay interest under section 23A/B/C.  Accordingly, now the senior citizen could pay tax after the FY ends on 31 March as “self assessment tax” on taxable income before filing returns. (Ref: Livemint For senior citizens no advance tax if no business income)

Interest on Fixed Deposits for Senior Citizens

Banks offer a higher rate of interest on fixed deposits to senior citizens. The offering is 0.25-0.75% more than the prevalent interest rates. The minimum age to get a premium on your deposit is 60. A younger age group person can also enjoy this benefit if he opens a joint account with a senior citizen. But the deposit needs to be in the name of the elder one. How much extra will senior citizen earn, let’s see through an example Using our Fixed Deposit Calculator (In India Interest rate on Fixed Deposit is compounded quarterly)

  • Senior citizen investing Rs 50,000 for a 3-year-tenure at 9.5% will get 66,266.95 on maturity
  • A person invests Rs 50,000 for a 3-year-tenure at an interest rate of 9% get  Rs 65,302.5 on maturity

Senior citizen will get Rs 965(964.45) more. If a senior citizen opts for quarterly payout of interest, then he earns Rs 750 more. Interest rates on fixed deposits changes from time to time. For example last year interest rates offered on term deposits were higher. At any particular time interest rate depends on

  • Period or tenure of deposit ( 15 days, 1 year , 5 years etc),
  • Interest paid every quarter or on maturity(cumulative)
  • Amount invested (less than 15 lakh, more than a crore etc)
  • Bank. Interest rate varies from bank to bank.

While many websites cover interest rates on fixed deposits ,but  check if the information is updated. We found that Moneycontrol’s Best Rates by Fixed Income Instruments allows one to search on different parameters (Tenure, Investor Type) quite updated. To find rates for Senior Citizen choose Investor Type as Senior Citizen. In any case  you are requested to reconfirm the rates from the respective institutions before making any financial commitments. (Click on image to enlarge)

FD interest rates search on moneycontrol

FD interest rates search on moneycontrol

TDS on Fixed Deposit

Tax or TDS is deducted by the bank, if the aggregate interest income from fixed deposits that you are likely to earn for all your deposits held in a branch is greater than Rs 10,000 in a financial year. If  Bank deducts TDS then bank would give you FORM 16A and it would also come up in FORM 26AS. Please verify. (Avoid TDS : Form 15G or Form 15H covers the topic in detail)

TDS can be avoided by:

  • Distributing FD investment:Split the FD to separate banks or branches of banks in such a way that interest earned from any of the FD does not exceed the Rs 10000 limits.
  • Timing the FD: The TDS can also be saved by timing the FD in such a way that interest for any of the financial years does not exceed Rs 10000. For example, a 12-month FD of Rs 1 Lac @ 10.5% could be started in September as the financial year closes on 31st March so the interest would split in two financial years, and hence TDS could be avoided.
  • By Submitting Form 15G/15H. For Senior Citizens Form 15H 

Remember

  • Whether TDS is deducted or not interest in Fixed Deposit is taxable ,
  • Tax  on FD is calculated by adding interest income from FD as income from other sources to your salary etc and then tax is calculated as per your income slab

Form 15H to avoid TDS for Senior Citizen

Form 15H is a declaration made by senior citizen for Bank to not deduct tax  when :( Under sub-section (1C) of section 197A of the Income-tax Act, 1961,)

  • He is a senior citizen
  • His estimated income in the year will be below the exemption limit.
  • Has submitted PAN
  • Form 15H is valid only for a year. It has to be submitted every year in the month of April for every fixed deposit whether interest is paid or not (in case of cumulative)

If senior citizen does not fill form 15H, does not fill on time or due to bank officials somehow Form 15H is not considered, TDS will be deducted when interest for all one’s deposits held in a branch is greater than Rs 10,000 in a financial year.  Note: interest on FD in that Financial year should be more than 10,000, it’s not the amount invested in FD or total interest earned in FD. Part of 15H (pdf) is shown in picture below.

Form 15H: No TDS for Senior-Citizen

Form 15H: No TDS for Senior-Citizen

 PAN is necessaryIf PAN is not submitted then TDS will be at higher rate and Form 15H will be invalid.

  • As per section 206AA introduced by Finance (No. 2) Act, 2009 wef 01.04.2010, every person who receives income on which TDS is deductible shall furnish his PAN, failing which TDS shall be deducted at the rate of 20%(as against 10% which is existing TDS rate) in case of Domestic deposits and 30.90% in case of NRO deposits
  •  In the absence of PAN  TDS certificate will not be issued, form 15G/H and other exemption certificates will be invalid even if submitted and penal TDS will be applicable  (as per CBDT circular no:03/11)

TDS and Income Tax Return If you file Income Tax Return then you need to show interest earned from Fixed Deposits and TDS.

  • Interest from Fixed Deposit comes under Income from other sources. 
  • TDS cut is shown in DETAILS OF TAX DEDUCTED AT SOURCE FROM INCOME OTHER THAN SALARY. (Note: This is as per Form 16A and is reflected in Form 26AS)

Sample images from  Filling ITR-1 : Bank Details, Exempt Income, TDS Details are shown below for Mr. Mehta who had income Interest on saving bank account (Rs 5000) and Interest from Fixed Deposit(Rs 20,000) and bank deducted 10% TDS i.e 2,000 Rs on FD. (Note: These images are for ITR1 of FY 2011-12(AY 2012-13. Forms for FY2012-13(AY 2013-14) may be different).

ITR1: Part B
TDS is shown in part of ITR with deals with details of Tax Deducted at Source Other than Salary. Note: This is as per Form 16A and is reflected in Form 26AS.
ITR1 : Sch TDS2

Refund on  TDS

If TDS has been deducted for interest on FD and senior citizen(or any individual for that matter) is not liable to pay tax then one can claim refund on tax. Income Tax Return Form have a portion called as  Tax category. Where one needs to Fill Tax Refundable in Nature  of Tax in ITR. The category is based on total tax payable with and interest and total prepaid tax.

A19 Tax category
Tax category works as follows:
  • If total tax and interest < total prepaid tax then fill tax refundable
  • If total tax payable > total prepaid tax then fill tax payable
  • If total tax payable = total prepaid tax then fill nil tax balance

It has to be supported by showing the tax computation and tax deducted.  Which are in Part TAX COMPUTATION AND TAX STATUS of the ITR Form. For ITR 1 of FY 2011-12(AY 2012-13) parts of ITR1 is shown below.

How to choose Nature of Tax

Ref: Livemint answer on tax oninvestments for Senior Citizen (Nov 2012)

Related Articles:

In this article we discussed who is Senior Citizen and Very Senior Citizen, tax slabs for Senior Citizens, Fixed Deposits for Senior Citizens, Form 15H to avoid TDS, show interest in Income Tax Return and how to fill ITR  form for refund.

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