Benefits senior citizens can avail on FDs

Fixed Deposit is one of the oldest and safest investment instrument for any individual, moreover especially for senior citizens as they are likely to have a lump sum amount and low-risk appetite. Fixed Deposit service is given by banks, post office, and NBFCs. In banks, a fixed deposit can be of any period ranging from 7 days to 10 years. However, in the case of post-office and NBFCs the period range starts from 1 year and can extend up to 5 and 7 years respectively.

The rate of interest on post office fixed deposit is fixed for each term, but in case of banks and NBFCs, the rate is fixed on the basis of the amount deposited and tenure chosen for the deposit. However, they also provide some extra benefit to senior citizens like a higher interest rate. In addition, senior citizens also enjoy tax benefits. The main features of fixed deposit like fixed returns and periodic income also serves as key attractions for senior citizens to opt for fixed deposit.

Benefits for Senior citizens

Banks and NBFCs provide higher interest rates to senior citizens than the rate they provide to other individuals by 25 to 100 basis points. For example, the rate for non-senior individuals for ICICI fixed deposit ranges from 4% to 7.50%, but for senior citizens, it is 4.5% to 8%.

For Axis Bank, the rate for fixed deposit ranges from 3.5% to 7.55% for non-senior individuals, but for senior citizens, the rate ranges from 3.5% to 8%. Similarly, the rate offered by Bajaj Finserv ranges from 8% to 8.75% for non-senior individuals and for senior citizens the rate ranges from 8.35% to 9.10%.

Under section 80TTB, as per the recent Union budget, 2018-19 under Income Tax Act, 1961, senior citizens can claim deduction up to Rs. 50,000. In this clause or deduction clause, all kinds of bank deposits are included.  This means that senior citizens can cumulatively claim for up to Rs. 50,000 of deduction irrespective of the type of bank deposit.

Banks or NBFCs need to deduct tax at source (TDS) in case the interest income is exceeding Rs. 10,000. But recently the clause has been updated according to which the TDS will be deducted only when the interest income exceeds  Rs. 50,000 in a year. TDS at the rate of 10% will be deducted in case the depositor has submitted its PAN. In case PAN is not furnished then the rate of TDS will be 20%.

This means that if a senior citizen’s yearly interest is Rs. 49,000 then no TDS will be deducted. But in case the yearly interest is amounting to Rs. 53,000 then a TDS of Rs. 5,300 would be deducted. This deducted amount forms part of the total tax paid by the concerned individual. Therefore, in case the actual tax liability is lower than the paid amount than a refund can be filled.

Conclusion

Senior citizens earn higher interest, saves more on tax and also has a higher limit for TDS. These benefits coupled with fixed returns and periodical income makes fixed deposit an attractive investment instrument for senior citizens. Especially the recent amendment which has increased the deduction limit from Rs. 10,000 to Rs. 50,000 has left more income in the hands of senior citizens who have opted for fixed deposit.

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