Income Tax News: Tax-saving fixed deposits (FDs) offer senior citizens a viable avenue to avail tax deductions under Section 80C of the Income-tax Act, 1961, while also providing an opportunity to generate tax-exempt returns. With the interest earned on fixed deposits typically incurring taxes, it’s essential for senior citizens to understand the nuances of tax-saving FDs to optimize their tax benefits.
Understanding Tax-Saving Fixed Deposits for Senior Citizens: Maximizing Tax Benefits
Under the tax rules for senior citizens, individuals aged 60 or older can claim deductions of up to Rs 1.5 lakh under Section 80C of the Income-tax Act, 1961. Additionally, they can avail a deduction of up to Rs 50,000 annually from their gross total income under Section 80TTB of the same act. This deduction extends to the interest earned on tax-saving FDs.
However, the Rs 50,000 threshold per financial year for Section 80TTB applies to the total interest income from various deposits, including bank deposits, post office deposits, and cooperative society deposits involved in banking activities. For many senior citizens relying on interest income for livelihood, this limit may prove insufficient.
To maximize tax benefits under Section 80TTB
To maximize tax benefits under Section 80TTB, senior citizens can strategically invest in tax-saving FDs to ensure that their total interest income remains close to the Rs 50,000 limit in a financial year. However, achieving a tax-free return requires careful planning.
Senior citizens can invest up to Rs 1.5 lakh in tax-saving FDs to enjoy a tax-free return. Instead of depositing the entire amount in one account, they can divide it into smaller parts and invest in cumulative tax-saving FDs annually. This approach, akin to fixed deposit laddering, helps spread the maturity dates over successive years, reducing the risk associated with all deposits maturing simultaneously.
By understanding the intricacies of tax-saving FDs and employing strategic investment techniques, senior citizens can effectively maximize their tax benefits while ensuring a steady income stream from their fixed deposits.
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