KOCHI: At a time when interest rates are gradually plateauing, some small finance banks are still offering FD interest rates of up to 9.1 per cent for senior citizens investing for a five-year tenure.
While large, well-established banks are well-positioned to attract the bulk of deposits, smaller players are left with little choice but to offer higher interest rates to stay competitive
Attractive fixed deposit (FD) options – available for amounts below Rs3 crore – can be especially rewarding for retirees looking to secure steady returns.
Among the highest offerings, Suryoday Small Finance Bank leads the list, providing a 9.1 per cent FD interest rate for senior citizens on five-year deposits.
Following closely, NorthEast Small Finance Bank offers up to 8.5 per cent, while Utkarsh Small Finance Bank and Jana Small Finance Bank offer 8.25 per cent and 8.2 per cent, respectively, for the same tenure.
Where TDS kicks in
While these returns can be lucrative, there’s a catch. Banks are legally required to deduct TDS (Tax Deducted at Source) if the total annual interest from FDs crosses Rs1 lakh for senior citizens – even if the individual’s income is otherwise exempt from tax.
This is a common issue, especially under the new tax regime, where no tax is applicable on incomes up to Rs12 lakh, thanks to the Section 87A rebate.
A chartered accountant pointed out that senior citizens can file Form 15H to avoid TDS if their taxable income falls below the threshold, including deductions and rebates.
“Even if there’s no actual tax liability, banks deduct TDS automatically once the interest crosses Rs1 lakh, because they can’t determine an individual’s tax situation,” he explained.
To avoid such deductions, senior citizens whose total income falls within the non-taxable range under either the old or new tax regime should consider filing Form 15H in advance.
Senior citizens can still earn FD interest rates up to 9.1% from select banks, but need to file Form 15H to avoid TDS on fixed deposit interest exceeding Rs1 lakh.
