Photo: iStock
Photo: iStock

Senior citizens don’t have to pay TDS on interest income of up to Rs50,000

Under 80TTB, if the gross total income of a senior citizen assessee includes income from interest on deposits, a deduction of up to Rs50,000 shall be allowed on this income

Senior citizens were offered quite a few benefits in the Union Budget 2018. One of these was the proposal that interest income of up to Rs50,000 earned by a senior citizen from bank deposits will attract neither income tax nor tax deduction at source (TDS). 

Falling interest rates in the past few years have affected finances of many senior citizens as many such investors prefer fixed income instruments such as bank deposits and small savings schemes for investment, over market-linked instruments like mutual funds. Therefore, for this group of people, interest income of up to Rs50,000 being made tax-free brings some relief. 

A few years ago, interest income up to Rs10,000 from savings accounts was made tax-free. Section 80TTA was introduced in the Income-tax Act, 1961, in assessment year (AY) 2013-14, under which interest earned up to Rs10,000—from all savings bank accounts, either with a bank or with a cooperative society engaged in banking business and as specified, or a post office—was exempt from tax. This exemption is available to all assessees, and not just senior citizens. In case the interest earned is more than Rs10,000 in a financial year, the difference gets added to the other taxable incomes and attracts tax. 

In the Union Budget 2018, a new sub-section—80TTB—has been proposed. Under this, if the gross total income of a senior citizen assessee includes income from interest on deposits, a deduction of up to Rs50,000 shall be allowed on this income.

While under section 80TTA the interest earned only from savings account deposits was exempted, under section 80TTB interest from all kinds of bank deposits would be exempted. Exemption under the newer section is available only to senior citizens who are residents of India. This section will take effect from 1 April 2018 and will apply to AY2019-20 and beyond.

This year's Budget also proposed that TDS will not be charged to senior citizens if the interest income is less than Rs50,000. Once the interest income crosses the Rs50,000 mark, banks will deduct TDS on the entire interest income. Banks deduct TDS at the rate of 10% where depositors have furnished their Permanent Account Number (PAN) and at the rate of 20% in cases where there is no PAN. For instance, from 1 April 2018, if a senior citizen’s annual interest income from bank fixed deposits were to be Rs48,000, no TDS would be applicable. But if the interest income were to be Rs55,000, TDS of Rs5,500 would be deducted by the bank.

If the interest income is more than Rs50,000, but the estimated taxable income of the senior citizen is less than the threshold of taxable income, the assessee can submit Form 15H to avoid TDS on interest. As per provisions of section 197A of the income-tax Act, a self-declaration in Form 15G (for taxpayers below 60 years) or Form 15H (for those above 60 years) can be furnished to avoid the trouble of obtaining a refund for tax deducted. Irrespective of the amount of interest income—whether it is taxable or not—it should be disclosed in the income tax return.