personal finance

Tax saving FD interest rates above 6.4% for senior citizens


The bank fixed deposit (FD) is among the most popular investing and tax-saving tools for senior citizens. This is because of the low risk when compared to investments in equity and the availability of different tenures.

When compared to the general public, senior citizens typically receive higher interest rates. Banks often pay a 0.50 percent higher interest rate. Senior citizens can choose between receiving regular interest payments (non-cumulative option) to cover their costs or receiving the principal amount plus interest at maturity (cumulative option).

Tax-saving FDs with bank is one of the most popular investment avenues in the section 80C basket of financial instruments as specified in the Income Tax Act. For tax-saving purposes, many people use this investment option as they are considered to be less risky compared to equities.

Minimum and maximum investment amount

The minimum amount to place an FD for saving tax varies from bank to bank. However, one cannot invest more than Rs 1.5 lakh in a financial year in these deposits.

Tenure of FD

Tax-savings fixed deposits (FD) have a fixed tenure of five years.

According to the Bank Term Deposit Scheme, 2006, you cannot break these FDs before the expiry of five years from the date of deposit. Unlike the normal FD which can be used as collateral to obtain a loan, tax-saving FD cannot be used as collateral or be pledged to obtain loans.

Taxation

Investment amount up to Rs 1.5 lakh in a financial year qualifies for deduction under section 80C of the Income Tax Act. According to newly inserted section 80TTB in the Income Tax Act, interest amount received up to Rs 50,000 on deposits held with banks, co-operative banks or post offices are effectively tax-exempted. This tax exemption works as follows: A senior citizen can claim deduction of up to Rs 50,000 interest income earned from these entities as deduction from gross total income before levy of tax.

Additionally, no TDS will be deducted from the interest payments made up to Rs 50,000 in one financial year. To avoid deduction of TDS, a senior citizen can submit Form-15H to the bank.

Nomination facility

Nomination facility for FDs is also available. While placing an FD, it is important that you mention the nominee in a clear and precise manner so that your legal heirs do not have to go through difficulties to claim the money. A separate form has to be filled while giving nomination, known as Form DA1.



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