How much Interest Income is Exempt for Senior Citizens and Individuals in Income Tax?
Introduction
Interest income is the amount paid to an entity for lending its money or letting another entity use its funds. On a larger scale, interest income is the amount earned by an investor’s money that he places in an investment or project.
Such income is generally taxable, however, the income tax law provides for certain exemptions on such income. Such exemption is distinguished for individuals and senior citizens separately.
Why do senior citizens in India have enhanced exemptions w.r.t income tax?
In India majority of older persons face financial hardship in old age as most of them are not in a position to earn their livelihood.
Their savings, if any, are not enough to meet their day to day expenses, particularly the medical expenses. Older persons with good net-worth value are in search of good short-term financial planning to earn a good income from their finance. The Income Tax law provides various benefits to senior citizens in India with the view to mitigate their issues.
The basic tax exemption limit for normal citizens below 60 years of age is Rs 2.5 lakh in a financial year. But for Senior Citizens, the exemption limit is Rs 3 lakh, while for Super Senior Citizens, the limit is Rs 5 lakh.
So, a Senior Citizen doesn’t have to pay any tax or file ITR in case the annual income is up to Rs 3 lakh and no TDS is deducted during the financial year. Similarly, a Super Senior Citizen is exempted from paying tax and filing ITR if his/her annual income is up to Rs 5 lakh and no TDS is deducted.
Who is considered as a Senior Citizen in India?
According to the law, a senior citizen is an individual resident between the age group of 60 to 80 years, as on the last day of the previous financial year.
Who is considered as a Super Senior Citizen in India?
A super senior citizen is an individual resident who is above 80 years, as on the last day of the previous financial year.
Is Interest Income Taxable?
Interest income from Fixed Deposits is taxable. It is covered under the head ‘Income from Other Sources’ in your Income Tax Return.
Senior citizens receiving interest income from FDs, savings account and recurring deposits can avail income tax exemption of up to Rs 50,000 annually under Section 80 TTB. This is by way of an amendment vide Finance Act 2018.
What is Section 80TTB?
Section 80TTB which was applicable w.e.f. 1 April 2018 is a provision whereby a taxpayer who is a resident senior citizen, aged 60 years and above at any time during a financial year can claim a deduction of lower of Rs 50,000 or an amount from a specified income from his gross total income for that FY.
Specified income is any of the following income in aggregate:
- Interest on bank deposits (savings or fixed);
- Interest on deposits held in a co-operative society engaged in the business of banking, including a co-operative land mortgage bank or a co-operative land development bank; or
- Interest on post office deposits
Senior citizens cannot claim deduction under section 80TTA
Section 80TTA provides a deduction of Rs 10,000 on interest income. This deduction is available to an Individual and HUF.
This deduction is allowed on interest earned –
- From a savings account with a bank
- From a savings account with a co-operative society carrying on the business of banking
- From a savings account with a post office
Earlier, this deduction was available to everyone irrespective of their age, i.e., to individuals aged below 60 years, senior citizens, and super senior citizens.
However, with effect from financial year 2018-19, senior citizens cannot claim deduction under this section. Post Budget 2018, section 80TTA has been amended which restricts senior citizens from claiming any deductions on interest received on savings account either with bank or post office under this particular section. However, they can claim deduction up to Rs 50,000 for interest received from savings account and fixed deposit with banks and post office under the newly inserted section, i.e., section 80TTB.
Let us refer to the below summary to find out what interest incomes are taxable and what are exempt:-
Interest income on a Fixed Deposit – The interest income on a Fixed Deposit is taxable, and one has to pay taxes as per the applicable tax slab rates. Moreover, the bank also deducts TDS on this income, although TDS is cut only when interest income exceeds Rs 10,000 in any given fiscal year. Moreover, the exemption limit for senior citizens is Rs 50,000 under Section 80TTB. One can also avail of exemption on TDS by filing Form 15G (15H for senior citizens) if your overall taxable income from all sources is below the respective exemption limit.
Interest income on savings account – Interest income on savings account up to Rs 10,000 (Rs 50,000 for senior citizens), is exempt. However, any interest income on Savings Account above Rs 10,000 is taxable as per applicable slab rates. To calculate the exemption limit, interest income from all the accounts are added, including bank Savings Accounts, post office Savings Accounts, and co-operative bank Savings Accounts.
Interest income on Recurring Deposit – The interest income earned on Recurring Deposit is fully taxable without any deduction unlike that of a Savings Account. Moreover, as per Section 194A, banks also deduct TDS on Recurring Deposit interest income at 10%.
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