Highlights:
- Senior citizens whose total taxable income is less than the 5-lakh exemption limit can file Form 15H with their banks to avoid this deduction on their FD interest.
- According to existing rules, a bank deducts 10% TDS on FD interest above 50,000 in a year for a senior person aged 60 and above.
The new regulation exempts senior people aged 75 and up with income solely from pensions and interest from fixed deposits (FDs) from filing income tax returns, saving eligible seniors from the hassle of seeking refunds on TDS on FDs.
According to existing rules, a bank deducts 10% tax deducted at source (TDS) on FD interest received in excess of 50,000 in a year for a senior citizen aged 60 and above.
Senior citizens whose total taxable income is less than the 5-lakh exemption level can file Form 15H with their banks to avoid this deduction on FD interest.
Taxpayers with taxable incomes above 5 lakhs, on the other hand, will incur a higher tax burden. This is mainly due to 10% TDS (tax deducted at source) deduction rule on fixed deposit interest, which results in an outgo that is greater than the tax they would otherwise pay based on their tax bracket.
Taxpayers can, of course, subsequently demand a refund for any excess tax paid.
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A senior taxpayer, on the other hand, can avoid the hassle of obtaining tax refunds by submitting Form 12BBA. This is because, according to a Central Board of Direct Taxes (CBDT) announcement, the bank would deduct the senior citizen’s income tax based on the “rates in effect,” which essentially means depending on the appropriate tax bracket, no separate TDS will be deducted on FD interest.
Form 12BBA is the income declaration form, which was announced by the CBDT on September 2nd, that a senior citizen must submit to his or her bank in order to be eligible for the exemption from filing tax returns.
This is a huge relief for elderly people who generally keep the majority of their retirement funds in bank accounts.
Besides lowering the compliance burden, the extra tax paid on FD interest protects elderly people’ income from compounding loss. The majority of senior citizens rely largely on FD income to manage their finances in retirement.
When TDS is deducted from the interest earned on a cumulative FD, the FD loses not only the TDS amount, but also the compound interest earned throughout the deposit’s remaining duration.
