Tax-saving fixed deposits for senior citizens - Know benefits, other key details

For the middle class in India specially the senior citizens, fixed deposits have always been the first choice as the safest mode to save their hard-earned money. And not only that, it becomes a source of income as fixed deposits (FDs) ensures interest on a monthly, quarterly or annual basis. However, each individual has their own preferences for savings. 

Fixed deposit (FD) has been a popular choice for saving money since it is not dependent on market variations and has a constant interest rate guaranteed at the time of maturity.

However, over the period of time, the interest rates on fixed deposits have considerably lowered resulting in less income generated out of it. As the Reserve Bank of India (RBI) kept the key repo rate unchanged at a 4% low for over a year now, most banks have reduced interest rates on fixed deposits. To top it all, FD returns are fully taxable as per the income tax slab of the investor.

This further reduces the rate of returns from FDs. Yet for senior citizens, fixed deposits are the first choice as it is the safest mode to keep money in banks, though of late they may be in a dilemma whether to depend on it for regular income or not. For such senior citizens, the banks have started the tax-saving FD account in a 'single' or 'joint' mode of holding.

FD accounts for Senior Citizens

This account is dedicated to senior citizens aged above 60 years.

Such account holders get a higher interest rate than usual and can access the monthly interest payout option.

This can be used as means for the monthly expenses for senior citizens.

Tax-Saving FD Account

Many risk-averse individuals utilise the tax-saving FD accounts with a minimum lock-in period of five years to save income tax.

Such deposits gain tax deduction under section 80C of the Income Tax Act, 1961.

Senior citizen investors can claim a deduction of up to Rs 1.5 lakh a year for their investments in these tax-saving fixed deposits.

It is an excellent investment option for senior citizens as most banks offer an additional 0.5% interest rate to them.

However, do keep in mind that premature withdrawals are not allowed because of the lock-in period of five years.

Senior citizens can submit Form 15H (Form 15G for non-senior-citizen depositors) to the bank to avoid TDS on the FD returns.

Senior citizens are also eligible to avail tax deduction of Rs 50,000 on the interest income from deposits under Section 80TTB of the I-T Act.