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A Fixed Deposit (FD) is a low-risk, traditional investment option where you deposit a lump sum of money with a bank or financial institution for a fixed period (tenure). It is considered a better option for senior citizens due to its higher safety. It offers a fixed interest rate, guaranteed returns, flexible tenure (from a few days to several years), and multiple interest payment options (monthly, annually, or at maturity). It's a safe way to grow savings and offers additional benefits like loans and tax savings. However, the interest earned is subject to TDS (Tax Deduction at Source).

At what interest amount is TDS applicable for senior citizens?
If the interest earned by a senior citizen from a fixed deposit in a bank exceeds ₹1 lakh, the bank is required to deduct TDS on that interest. For general individuals, this limit is ₹40,000 instead of ₹1 lakh.
Remember, TDS is not an extra tax; you can claim it back as a refund or adjust it against your total tax liability while filing your income tax return.

Interest can also be earned on the refund.
If you are eligible for a tax refund, you may also be eligible for interest on that refund. Let's understand this with an example. If a senior citizen's income is ₹11 lakh, they will not have to pay income tax for FY 2025-26 under the new tax regime due to the Section 87A tax rebate. The Section 87A tax rebate is applicable on income up to ₹12 lakh under the new tax regime for FY 2025-26.

Here, the ₹1 lakh interest above ₹11 lakh can be included in the total tax liability, and income up to ₹12 lakh will remain tax-free.

Here's another way
Alternatively, a senior citizen can submit Form 15H to avoid TDS deduction. If, after claiming all tax deductions and the Section 87A rebate, their total income is below the taxable limit, which is ₹12 lakh for the new tax regime or ₹5 lakh for the old tax regime, they can submit a form to avoid TDS deduction.

Banks are required to follow these rules.
It's worth noting that there is no income tax on annual income below ₹12 lakh. However, banks and other financial institutions are still required to deduct TDS. This is because, according to the law, they are required to deduct TDS when the interest/income amount exceeds a certain limit, which is ₹1 lakh in the case of senior citizens.

Banks are not aware of each individual's tax liability, and they deduct TDS whenever the annual interest exceeds ₹1 lakh. Therefore, it is advisable to submit Form 15H to inform the banks.

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