Tax Saving FD and Tax Benefit to Senior Citizens
Fixed deposit is financial instruments which are offered by banking and non-banking institutions. It is a type of deposit wherein the investment for a specific time period is made. Under Section 80C of the Indian Income Tax Act, investment amount in a tax saving fixed deposit can get the deduction. The deposits in FD can be individual or joint. Generally, the duration of these deposits is five years. The investor who invested in a tax saving FD a maximum deduction of Rs 1.5 lakh can be claimed. In other words, FDs act as financial tools that offer a higher rate of interest than the saving accounts. They are considered to be one of the most secure investment and tax saving options available. The fixed deposit service is offered by almost all banks. Every investment has its own risk. It is important to know the advantages and disadvantages of FD.
Advantages of Tax Saving FD:
- Any number of FDs: Any number of FDs can be opened at a particular bank or in different banks. The exemption limit of interest on FDs is 1.5 lakh; until the amount reaches that limit it is exempted from any taxes.
- Surety of returns: The interest offered by FD is comparatively higher than the savings account. Long term of FD offers greater returns. All banks have varying interest rates as per the policies.
- Permits partial withdrawal: At the time of emergencies fixed deposit allows partial withdrawal. The remaining amount will receive the same amount of interest as on the principal deposit.
- For loans: FDs can also be used to get loans. The loan can be extended up to 90% of the principal amount and interest that has been accrued.
- Ease of availability- All public and private sector banks offer the service of fixed deposits in India. Now, internet banking is also facilitating this process.
- Facility of auto-renewal: There is an option for auto renewal in FD. This option is great for people who often forget due dates and rely on reminders. There is no need for rushing to the branch for the renewal; it can also be done via internet banking.
Disadvantages of Tax Saving FD:
- TDS: Interest from FDs is also chargeable by TDS. However, if the depositor pays all interest at maturity, he can opt out of paying TDS.
- Inflation: Sometimes, the inflation rate may be higher as compared to the interest rate.
- Lower interest rate: Although FDs offer an interest rate up to 10% which is higher than that of savings account yet there are other investment options such as mutual funds which provide interest rate up to 20%-30%. But fixed deposit is a safe investment tool whereas MFs are riskier.
- Constant interest rate: The interest rate on the FDs is fixed for full tenure. Therefore, there is no chance of increment on the same.
What is the eligibility for tax saving FD?
- The depositor should be a citizen of India, or
- Member of HUF (Hindu Undivided family)
Documents needed for tax saving FD:
- PAN (permanent account number) card.
- The Government recognized identity proof- voter id, Aadhaar card, passport, driving license, ration card and so on.
Importance of tax saving FD:
As per current tax laws, by investing in tax saving FDs, the depositor can claim up to a maximum deduction of Rs 1.5 lakh. This deduction is also stated under Section 80C of the Income Tax Act. The maximum limit of the investment is fixed at Rs 1.5 lakh. FD scheme can be availed only by individuals and HUF (Hindu undivided family). In general, the tenure for FDs is 5 years, but if an emergency strikes, loans are available on the same. The FD as a financial investment tool is readily available with any public sector and private sector bank, but cooperative and rural banks do not provide this facility.
Tax benefit to senior citizens:
A certain set of benefits are offered by the Income Tax Act of India to senior citizens. Lately, there is an emphasis on digital banking to ease the process. Basically, there are two categories of senior citizens-
- Senior citizens above the age of 60 years
- Senior citizens above the age of 80 years
Highlighted below are some tax benefit of the fixed deposit to senior citizens:
The slab rates of income tax are different for non-senior citizens, senior citizens, and super senior citizens.
The slab rates are as below-
|Particulars||Non-senior citizens||Senior citizens||Super senior citizens|
|Tax-free||Up to 2.5 lakh||Up to 3 lakh||Up to 5 lakh|
|5% Tax||2.5 to 5 lakh||3 to 5 lakh||NA|
According to the slab rates, senior citizens benefit from it. Thus, senior citizens save tax up to Rs. 5000, super senior citizens up to Rs. 30000.
Under section 80D exemption for a premium of medical insurance
The Indian constitution under section 80D allows deduction of payment of medical insurance premium for non-senior citizens is Rs. 25,000. As for senior and super senior citizens, this deduction is 30,000 to 50,000.
Interest Income is tax-free up to Rs. 50,000
Under section 80TTB, the deduction of interest of Rs 50,000. The amount above 50,000 will be taxable as per slab rates for senior citizens.
Free from paying advance tax
Senior citizens who do not have any business income are not liable to pay any advance taxes. They are only obliged to pay self-assessment tax on the total income.
Non-deduction on TDS
If there is a case wherein the total income of a senior citizen is free from paying any tax; he will pay zero taxes for that financial year. He has the right to submit Form 15H for non-deduction of TDS on interest on fixed deposit. Under Section 194A, the limit for deduction of taxes increased from 10,000 to 50,000.
The amount received under the reverse mortgage scheme is non-taxable
The exact opposite of a home loan is a reverse mortgage. In case of a home loan, the EMI is paid to the bank and the house is owned by the payer. However, under a reverse mortgage scheme, a lifetime of the amount is paid to the senior citizen while mortgaging his house. The ownership remains with the senior citizen and the occupancy is also his. In case of death, the legal heirs receive the said amount after the property has been sold. Therefore, the amount paid to the senior citizens in the form of installments is free from any taxes.
Higher deduction for the ailment of specific diseases under Section 80DDB
Under Section 80DDB, the deduction will be provided to the person who undergoes assessment and treatment for specified ailments. As for senior and super-senior citizens, this deduction is 60,000 and 80,000 respectively. Now, the new limit is Rs 1, 00,000 for both senior and super senior citizens.