According to a report by researchers at the State Bank of India (SBI), the government has likely collected over Rs 27,000 crore in taxes from senior citizens on the interest they earned on term deposits in the last fiscal year. The total amount of deposits has increased by 143% in the last five years to Rs 34 lakh crore at the end of FY24. This growth is attributed to higher interest rates and an increase in the number of term deposit accounts by 81% to 7.4 crore.
It is estimated that at least 7.3 crore of these accounts have a balance of over Rs 15 lakh, resulting in senior citizens earning Rs 2.7 lakh crore as interest alone in FY24. The tax mop-up by the government from senior citizen deposits is estimated to be around Rs 27,106 crore assuming an average tax payment of 10%.
The government has introduced measures to encourage senior citizens to invest in fixed deposits, such as offering higher interest rates and raising the threshold of tax deducted at source (TDS) on deposits to Rs 50,000. This has contributed to the increase in senior citizens’ share in term deposits, which has risen to 30% from 15% five years ago. Some banks have also been actively attracting deposits, leading to an increase in deposit rates despite the Reserve Bank of India (RBI) holding the rate since February 2023.
It is important to note that the interest earned on fixed deposits, including tax-saving fixed deposits, is taxable as per the tax slab of the depositor. However, senior citizens can claim a tax deduction of up to Rs 50,000 on the interest earned on deposits, including SBI fixed deposits, under Section 80TTB. The interest income beyond Rs 40,000 (Rs 50,000 for senior citizens) is subject to TDS at 10% and 20% in the absence of a PAN card.
The SBI report highlights the significant growth in senior citizens’ term deposits and the impact of tax policies on their earnings. The government’s focus on providing better interest rates and schemes for senior citizens has led to a shift in depositors’ behavior and increased deposit accretion for this segment.
