The Union Budget 2018 enacted a number of senior citizen-friendly provisions. Prominent among them is Section 80TTB of the Income Tax Act which gives a deduction on interest income from banks and post offices to senior citizens up to Rs 50,000. Other individual taxpayers are entitled to a deduction of Rs 10,000 on Section 80TTA for their savings bank account interest. A senior citizen is defined as someone who has attained the age of 60 years.
All about Section 80TTB
Section 80TTB was introduced by Budget 2018 and applies from 1st April 2018 onwards. In other words, it applies to FY 2018-19 and subsequently.
The provision is a deduction rather than an exemption. Hence it must be claimed in the income tax return.
Section 80TTB applies to all types of bank and post office interest – from savings accounts and fixed deposits.
This is quite unlike Section 80TTA which applies to other individuals and only covers savings account interest. However, Section 80 TTB does not cover other types of interest such as company deposits or interest from Non-Convertible Debentures (NCDs).
No TDS will be deducted on bank and post office interest up to Rs 50,000 for senior citizens. Section 194A which governs TDS has been amended, accordingly.
Given current levels of interest rates (around 7%), senior citizens can hold around Rs 7 lakh in bank or post office fixed deposits and get completely tax free interest on it.
Other Interest Earning Options for Senior Citizens
Senior citizens can also invest in the government-backed Senior Citizens Savings Scheme (SCSS). The interest rate on the SCSS is 8.3%, but it is taxable. However senior citizens can get a tax deduction on contributions to the SCSS up to Rs 1.5 lakh per annum. The maximum amount that can be invested in SCSS is Rs 15 lakh.
Pradhan Mantri Vaya Vandana Yojana (PMVVY) offers a rate of 8% and is also aimed at Senior Citizens. This interest is also taxable and there is no deduction for contributions to the PMVVY. The maximum limit for investment in the PMVVY was raised from Rs 7.5 lakh to Rs 15 lakh in Budget 2018.
You can read more about both these schemes here.