Senior citizens dependent on interest income consider the interest rates on FDs and tax liability closely. Following are the key points to understand tax calculations on FDs:
Interest calculation on FDs
Usually, with some financiers, an FD with a lock-in period of 6 months or less earns simple interest. FDs with a period of more than six months earn compound interest. Investors can opt to receive payout periodically as per their needs. It may be monthly, quarterly, half-yearly or annually. In the case of monthly interest payout, interest is calculated on discounted rates.
Interest from FD is Taxable?
Interest earned on FDs is fully taxable in the hands of investors. Therefore, the interest earned on FD is added to the total income of the investor, and then the total income is considered for income tax slab.
For example, in the case of a Senior Citizen having salary, pension and interest income. After adding salary, pension and interest earned on FD, if his income tax slab is 20%, then he is liable to pay taxes at 20% on his entire income including the interest on FD.
TDS on Fixed Deposits
Tax Deducted at Source (TDS) is deducted on FD interest income every year. This interest amount is a part of your total taxable income. On behalf of the payee, the Bank deducts TDS at the time of making payment of interest and the TDS amount is deposited to the government on the payee’s account.
Under Section 80TTB of Income Tax Act, senior citizens of 60 years or above can avail tax deductions on the FD interest income up to Rs.50,000 in a financial year.
For instance, an investor aged 62 years has invested in an FD of four years with Bank Y. His FD earns an interest of Rs. 55,000 annually and hence, liable to pay 10% TDS. Rs 5,500 will be deducted every year for the lock-in period of FD i.e. four years instead of deduction of Rs.22,000 at the end of four years.
On the other hand, if his FD earns Rs.48,000 annually, which is less than 50,000, he can claim a refund.
The Optimum Choice
Fixed Deposits ensure the protection of principal amount and interest at a fixed rate. Bank FD rates in India are between 5-6%. Investors, especially senior citizens dependent on interest income, can look for best FD interest rates with corporate FDs such as Bajaj Finance FD.
If we do senior citizen fixed deposit interest rates comparison across banks and NBFCs, you will find that Bajaj Finance FD is offering one of the highest FD interest rates up to 7.35%. Whereas bank FDs are currently offering interest rates up to 6.5% for seniors. Senior citizens can also earn an additional interest rate benefit of 0.25% over and above regular FD rates with Bajaj Finance FD.
Other Benefits of Bajaj Finance FDs
Apart from high interest rates, seniors can enjoy the following benefits of Bajaj Finance FD:
- Flexible tenure options ranging between 12 – 60 months.
- Minimal investment amount starting at Rs.25,000 only.
- Easy and convenient online FD account opening process.
- Highest stability with ICRA’s MAAA/Stable rating and CRISIL’s FAAA/Stable rating.
- FDs for NRIs, Overseas Citizen of India (OCI) and Person of Indian Origin (PIO) with an NRO account.
- Systematic Deposit Plan which gives the flexibility to invest in an FD with small monthly deposits starting at Rs. 5000 per month.
- Flexibility to choose the frequency of periodic interest payouts- monthly, quarterly, half-yearly or yearly.
- Loan against FD facility in times of financial emergencies.
- Easy to use online FD calculator.