Arun Jaitley's bonanza for senior citizens poses a dilemma, FD or SB interest?

Finance Minister Arun Jaitley has done several things in Budget 2018 quietly without fanfare. One of them is taxability of interest of senior citizens. As it is, everyone irrespective of his age gets deduction of Rs 10,000 uniformly from his gross total income under section 80TTA if it includes interest from savings bank account(s).

Jaitley has introduced another section 80TTB under which senior citizens would get a hefty deduction upto Rs 50,000 if their gross total income includes interest from fixed deposits with banks. For good measure and in sync with this, he has also amended section 194A asking banks not to deduct tax at source from senior citizens on Fixed Deposits (FD) interest upto Rs 50,000 per annum. There is no TDS on savings bank interest. So far so good.

While doing this, he has played a small but significant mischief. He has thrown the gauntlet at the senior citizens---choose between section 80TTA and section 80TTB. In other words, the two benefits are going to be mutually exclusive. The bottomline is senior citizens whose pet investment is FD would normally plump for the new tax saver section 80TTB because it begets them a greater tax exemption vis-à-vis section 80TTA. In the event, their savings bank interest would become fully taxable which is a pity.

Image courtesy: Reuters

Image courtesy: Reuters

There are senior citizens still standing on their own slender, enfeebled legs. They perforce have to keep a large amount in their savings account because loneliness brings with it a feeling of insecurity.

Money on tap is more valuable than money in tank as it were, as far as they are concerned. This is not to say that they don’t invest in fixed deposits. They do. But they also keep a sizeable amount in savings account so that they can draw from it anytime without much ado to meet numerous emergencies that routinely assail them. It is cruel to wrench away a small tax benefit from them just because they perforce plumped for a larger and newer tax benefit.

The new tax benefit is, however, going to make senior citizens more wanted. Grown-up sons and daughters-in-law as well as grandchildren might choose to park their surplus funds by opening fixed deposits in the name of the family patriarch as well as the matriarch. And given the longevity that has come to characterize our demography, there could be a cornucopia of senior and very senior citizens in a family.

Imagine patriarch and matriarch and grand patriarch and grand matriarch as well in a family. The four of them among them come to enjoy hefty tax break of Rs 2 lakh sans hassles of TDS. The doting children and grandchildren only have to get their names inserted as nominees just in case. Levity aside, the senior citizens would be only too happy to be of use to the family and return the money (principal as well as interest) to whosoever it belonged.

This won’t be a new trend or show of affection. It all started ever since the income tax law started giving extra benefits to senior and very senior citizens, with the latter not being taxed on their first Rs 5 lakh of income. Families are often united by tax considerations if not by affection.

Updated Date: Feb 03, 2018 11:06 AM

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