We regularly get queries regarding Senior citizen Fixed Deposit. 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.
- 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 :
- Ask the bank not to cut TDS by submitting filled form 15H (pdf) to bank every April.
- 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 there are two categories of Senior Citizens given below.
- Senior Citizen: For age of 60-80 years
- Very Senior Citizen: Above 80 years
This has come into effect from FY 2012-13 was suggested in Budget 2011-12. Before the age limit to be considered a senior citizen was 65 Years.
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)
TDS on Senior Citizen 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 whether you are senior citizen or not. 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
- 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
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 2016-17 is 31-Mar-2017) will be considered as senior citizen for that Financial Year. So
- A person who is of age between 60-80 years on 31st Mar 2017(including 31st Mar) will be considered as Senior Citizen for FY 2016-17 or Assessment Year 2017-18.
- A person who is above 80 years on 31st Mar 2017(including 31st Mar) will be considered as Senior Citizen for FY 2016-17 or Assessment Year 2017-18.
The age for Senior Citizen(and Very Senior Citizen) and the various tax slabs are announced in Budget every year.Tax slabs for FY 2016-17(AY 2017-18) is as follows.( Our article Understanding Income Tax Slabs,Tax Slabs History discusses Tax slabs etc in detail) Income Tax for AY 2017-18 or FY 2016-17
|AX||MEN and WOMEN below 60 years||SENIOR CITIZEN(Between 60 yrs to 80 yrs)||For Very Senior Citizens(Above 80 years)|
|10% tax||250001 to 500000||300001 to 500000||–|
|20% tax||500001 to 1000000||500001 to 1000000||500001 to 1000000|
|30% tax||above 1000000||above 1000000||above 1000000|
|Surcharge||15% of the Income Tax, where total taxable income is more than Rs. 1 crore|
|Education Cess||3% on Income-tax plus Surcharge.|
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 a 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. Sample filled form for no deduction of TDS in FY 2016-17 or AY 2017-18 for Fixed Deposit interest is shown in the picture below.
PAN is necessary. If 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).
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.
- 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.
Ref: Livemint answer on tax oninvestments for Senior Citizen (Nov 2012)
- FAQ on Tax and Fixed Deposits
- Filling ITR-1 : Bank Details, Exempt Income, TDS Details
- TDS, Form 26AS and TRACE
- Advance Tax:Details-What, How, Why
- Understanding Income Tax Slabs,Tax Slabs History
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.