Significant Tax Breaks in 2018 on Fixed Deposits

The 2018 budget is proving to be exceptionally profitable for senior citizens with several tax benefits being sanctioned specifically keeping them in mind. Senior citizens are the largest group in the market economy that relies on interest incomes from bank fixed deposits and post office schemes.

Why Are Fixed Deposits So Appealing to Senior Citizens?

FD (Fixed Deposit) is investment instruments that allow people to place their money with a bank. The bank then pays a pre-decided amount of interest on the sum at pre-decided intervals. The reason these instruments are primarily used by senior citizens is that they are retired and usually have no steady income.

However, they have money which they have accumulated through other investments and retirement. This amount can, essentially, be loaned to a bank to invest with while it pays them back in interest. It creates a continuous source of income for them without having to rejoin the work force. This year, the Government has finally relaxed laws that apply to senior citizens when it comes to taxation.

Unprecedented Tax Exemptions for Senior Citizens

Until now, senior citizens could avail a tax exemption on INR 10,000 from interest income on savings accounts under 80TTA. In 2018, 80TTB was launched which includes interest on fixed deposits and raises the exemption cap from INR 10,000 to INR 50,000. This means investing in Senior Citizen fixed deposits are now better than ever before.

Different Slabs for Senior and Super Senior Citizens

Senior citizens are divided into two classes:

  1. Those above 60 years of age: Senior Citizens
  2. Those above 80 years of age: Super Senior Citizens

Senior citizens avail tax-free income up to INR 3 Lakh and a 5% tax rate on INR 3-5 Lakh.

While super senior citizens avail tax-free income up to INR 5 Lakh and a 5% tax rate above that.

Senior Citizen Fixed Deposit Interest Rates Soar

The new sanction 80TTB allows senior citizens to get a lot more tax-exempt interest income from investment in fixed deposits. Seeing this welcome change, banks are offering lucrative interest rates for senior citizens. For example, Bajaj Finance offers 8.20% in interest returns for senior citizen fixed deposits.

Non-Deductible TDS on Interest

If the total income of a senior citizen is exempt because they have not made more than INR 50,000, there is a procedure for them to still get a non-deduction on their TDS. They can submit a special form called Form 15H which provides non-deduction on TDS on the interest generated from the fixed deposit.

Further Cuts on Deductions for Senior Citizens Under Section 80DDB

Senior citizens are also the segment of the market that have to deal the most with urgent ailment costs and medical insurance. The deductible can be very high on some insurance plans. To counter this and alleviate their cost, the government has granted them a higher cap on deductibles.

Where it used to be INR 60,000 for senior citizens and INR 80,000 for super citizens, with the new reform the cap is now INR 100,000 for both senior and super-seniors.

Now is The Time to Make an Investment!

If you are a senior reading this, it is obvious that the government has made plenty of changes to make your investments safer and more beneficial. The tax exemption cap having been raised by 400% is sure to save you tons of money, especially if you already have fixed deposits. And, if you don’t, Senior citizen fixed deposits have never been as lucrative with higher interest rates being offered across the market!