Senior citizens now do not have to pay TDS on interest up to Rs 1 lakh earned from FD interest. But, now the big question is how to avoid TDS on interest above Rs 1 lakh? Here we are telling elderly investors how they can plan for this?
TDS Calculation on Senior Citizen FD: In the budget, the central government has increased the tax deduction at source (TDS) exemption on interest received from FD to Rs 1 lakh for senior citizens. Obviously, TDS will have to be paid if interest is received more than Rs 1 lakh. However, if smart planning is done, senior citizens can avoid TDS deduction by investing in FDs in different banks and earning interest up to Rs 99,999. According to the current rules, no bank will deduct TDS if the interest on the FD of a senior citizen is less than Rs 1 lakh. Keeping this rule in mind, if smart planning is done, TDS deduction on interest of more than Rs 1 lakh can be avoided through FDs in different banks.
Role of Form 15H
Before understanding the math of investing how much amount at what interest rate in which bank to get TDS exemption, let us know what is the role of Form 15H. Actually, if an elderly investor has not submitted Form 15H in the bank, then even if the interest is Rs 1 lakh or less, TDS will still be deducted. Form 15H actually prevents TDS deduction. However, the condition in this is that the annual income of the senior citizen should not exceed Rs 3 lakh in the old tax system.
How much FD to do for TDS exemption
Below are shown the rates of the three banks giving the highest interest on FD to senior citizens. Along with this, the amount is also mentioned, on making FD of which the annual cumulative interest will be less than Rs 1 lakh and TDS deduction will not be done.
| Principal Amount | Interest Rate (Cumulative) | Interest amount (in 1 year) |
| Rs 12,13,110 | 8% (Central Bank of India) | 99,999 |
| Rs 11,32,751 | 8.55% (Bandhan Bank) | 99,999 |
| Rs 10,15,864 | 9.5% (Unity Small Finance Bank) | 99,999 |
However, it must be kept in mind that this will be taxed from the second year onwards, because the interest amount will also be included in the principal amount. In such a situation, the amount will have to be adjusted according to the interest rate for the next year as well.
Quarterly Pay-out FD
Quarterly pay-out FD can also be a way to avail TDS exemption on interest up to Rs 1 lakh. In this way, you will not have to adjust the principal amount again and again. In quarterly pay-out FD, interest is paid every three months. In such a situation, the principal amount will not have to be adjusted until the tenure of the FD is completed or the interest rate changes. The amount of FD to be made for this is mentioned in the table below.
| Principal Amount * | interest rate | Interest amount (in 1 year) |
| Rs 12,49,999 | 8% (Public Banks) | Rs 99,999 |
| Rs 11,69,590 | 8.55% (Private Banks) | Rs 99,999 |
| Rs 10,52,630 | 9.5% (Small Finance Banks) | Rs 99,999 |
Which banks are giving the highest interest?
According to the data of Bank Bazaar, the highest interest rate of 8% per annum for senior citizens among the public sector banks is being offered by Central Bank of India. For this, the tenure of FD has been kept at 1111 days. Whereas, among the private sector banks, the highest interest rate of 8.55% per annum is being given to senior citizens by Bandhan Bank. For this, the tenure of FD is 1 year. Whereas, among the small finance banks, Unity Small Finance Bank is offering the highest interest rate of 9.5% for senior citizens on FD, whose tenure is 1001 days.
Will tax have to be paid later?
By adjusting the amount according to the interest rate of those banks in different banks, you will get exemption from TDS on the interest received on FD. But, in the end, if tax liability arises on the basis of total income, then tax will have to be paid. Along with this, the total interest income of all FDs will also have to be declared in ITR. If this amount falls under the tax bracket as per the prescribed slab, then tax will have to be paid accordingly.
