FD: Offer Income Tax Benefits On Senior Citizens Savings Scheme

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As one approaches the brink of retirement, formulating healthy investment plans constitutes a vital decision. With the umpteen number of choices available in the investment market, narrowing it down to a conclusion that best suits the financial goals can be bewildering.

Following is a comprehensive guide of the income tax benefits for senior citizens.

Benefits of choosing a tax saving fixed deposit

For senior citizens selecting tax saving, FD is a safer option than equity or any market susceptible investment tools. It is mainly because, along with the safety of the deposit amount, there is a guaranteed source of income. The interest income is, however, dependent on the interest rates of the lenders.

Other benefits include:

1. Interest rate

The fd interest rates for senior citizens usually is higher than regular deposits. Senior citizens can choose cumulative or non-cumulative options based on the frequency of payouts desired.

2. Minimum and maximum amount

The minimum amount generally begins from Rs 100, however it varies from lender to lender. The maximum amount is fixed at the ceiling rate of Rs 1.5 Lakh, defined by the income tax regulations.

3. Premature withdrawal

After the lock-in period, depositors can avail of the facility of early withdrawal to meet urgent financial requirements. However, a penalty charge will be levied based on the lender for early withdrawal.

4. Loan facility

Most banks offer loan facilities against FD deposit. The interest rates are better than regular loans.

5. Nomination facility 

Most fixed deposit accounts can be opened with nomination facilities so that the legal heirs of the applicant do not have to undergo financial crunches at a later point of time.

Tax Benefits

As per the newly inserted section 80TTB of the Income Tax Act in Budget 2018, interest income earned up to Rs. 50,000 are tax exempted. It works as follows:

  • A senior citizen can claim a tax deduction on tax-saving FD for an interest income up to Rs. 50,000 in one financial year
  • Additionally, no TDS will be deducted for interest income of up to Rs. 50,000. Senior citizens can file form 15H to the bank to steer clear of deduction.

Final thoughts

Tax saving FDs are one of the easiest and quickest forms of investment that an investor can make. Besides being uninfluenced by market changes, tax-saving FDs are available at minimum lock-in periods compared to all other investment tools. Though the National Savings Certificate with five-year schemes also offers the same tax deduction privilege under the Income Tax Act 80 C, they are not available with the various payout provisions.

Also, senior citizens are offered high-interest rates on tax-saving FDs in comparison to the regular accounts. With payout facility and security of principal amount, tax-saving fixed deposits stand out as the most feasible choice of investment.

Get to know- Why Should Senior Citizens Invest Their Money In Fixed Deposit