How Can Senior Citizens Avoid TDS on Fixed Deposit?

Fixed Deposits have been considered the safest type of investment for long. It comes at a fixed interest rate that ensures assured returns and power of compounding. Additionally, this investment option also features a flexible tenure, which adds to the benefits of investors.

Interest earned on an FD shall attract TDS (Tax Deducted at Source) at 10%. The TDS on Fixed Deposit for senior citizens has been fixed at 10%, if their annual income from such investment is more than Rs.50,000. However, if you are a senior citizen, you must know that there are provisions that allow you to avoid this TDS. 

Read on to know more.

Ways for Senior Citizens to Avoid TDS on FD?

Your bank deducts interest income on FDs before submitting the corpus in your bank account. However, you can avoid this taxation if your annual salary is less than Rs.2.5 Lakhs. There are different ways to avail this exemption, such as:

1.Form 15G

Form 15H is a self-declaration form that you can submit to the bank requesting exemption of income tax on Fixed Deposit interest because your income is less than the basic exemption limit.

It is necessary to provide PAN for this purpose. Furthermore, some banks allow you to submit these forms online via their websites. In this regard, note that you need to submit this at the beginning of the financial year for a hassle-free exemption process. 

At the same time, senior citizens can file Form 15H even if their interest income exceeds the basic tax exemption limit. This is because their taxable income after necessary deductions stays below the exemption limit.

2. Form 12BBA

Senior citizens aged 75 and above seeking exemption from filing income tax can fill out and submit form 12BBA to their respective banks from this year.

This exemption is available to senior citizens who only receive pension and interest from fixed deposits. Furthermore, all senior citizens are eligible for this exemption. The only condition is that the pension and interest income should be deposited in the same bank.

About Form 12BBA

Apart from Form 15H, TDS on Fixed Deposit for senior citizens is also eligible for exemption by filling out the Form 12BBA. This is a comprehensive form that will request information on tax deductions to be claimed under sections 80C to 80U, tax rebates claimed under section 87A that reduce taxable income below the Rs.5 Lakhs exemption and overall income from pension and fixed deposit (FD) interest.

According to the Central Board of Direct Taxes (CBDT), once the form is submitted, the bank will compute the taxpayer’s total income after deducting tax deductions and rebates under Section 87A and deduct tax on the derived income based on slab rates. Furthermore, to ensure that senior citizens have no difficulty filling out the form, the CBDT has directed banks to assist eligible seniors in properly filling out the form. 

In this regard, the bank will file the Income-Tax Return (ITR) on behalf of the senior citizen taxpayer.

Besides, submitting Form 12BBA will also save senior citizens the trouble of obtaining a refund on tax deducted at source (TDS) on FD interest. According to IT laws, 10% TDS is deducted on interest income exceeding Rs.50,000 earned by a senior citizen. For taxpayers in the 5% and 10% tax brackets, the 10% TDS will result in a higher tax outgo than his/her tax slab.

Points to Remember Regarding TDS on Fixed Deposit for Senior Citizens

Here are a few crucial points to keep in mind regarding taxation of FD interest income for citizens above the age of 60:

  • In the case of fixed deposit investments, all individual residents 60 years of age or older qualify as senior citizens.
  • According to section 194A of the Income Tax Act, TDS on FD cannot be deducted in the case of deposits held by senior citizens if the earnings do not exceed Rs.50,000 during the fiscal year.
  • TDS on fixed deposits for senior citizens is deducted when the interest is credited, not when the FD matures. So, if you have a three-year FD investment, TDS on FD interest will be deducted at the end of each year and not at the end of the third year.
  • The tax deduction rate for resident Indians is 10%, or 20% if you have not provided PAN.
  • NRIs have to pay TDS on Fixed Deposits at the rate of 30%.

Knowing the above-mentioned pointers will help you gain more insight into the working of TDS on FDs. At the same time, before investing in this investment instrument, consider conducting thorough research. In this regard, you can resort to platforms like Bajaj MARKETS. This is a diversified marketplace featuring various Fixed Deposit offers by banks and financial institutions. You can draw a comparison between them and choose an account that best suits your needs.

There are two major ways through which you can obtain exemption of TDS on Fixed Deposit for senior citizens. Additionally, if your annual interest income is less than Rs.50,000, you become exempt from TDS.

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