Fixed deposite for senior citizen

POSTED BY sam s ON March 13, 2013 8:34 am COMMENTS (2)

My Mother is a non-working,senior citizen who manages house.My father passed away last year and left almost 10 lakhs in various accounts and FDs that we already cashed out and put down in my Mother’s account.

I want to make an Fixed deposite for my mother so that She can recieve monthly/quartly interest income that can be invested furthermore because my mother mostly don’t need any money as we take care of all household needs.

Now my question is :

1)Will 10 lakhs inherited by my mother be considered as income for her this year ? And she owe tax for this according to slab?

2)What if I add my 10 lakhs and make it 20 lakhs for FD ? Any tax implication for my mother ?Any limit for gift ?

3)How much money can she invest in FDs so that It doesn’t create tax implications.I don’t want to take overhead of filing her income tax.I heard there is no need to file income tax under certain conditions ?

4)What is the procedure so that there will not be TDS,I simply want to avoid paying TDS and then claiming next year.

5)Does Principle and Interest,both accounts for tax calculation ? Suppose the above 20 lakhs are fixed in 2012 and she earns 2 lakhs interest in 2013 so what amount will be taxable ? Taxable 20 lakhs in 2012 and Tax on 2 lakhs next year ?

As you see,I am very confuse and want to avoid filing/tax on my mother’s Money.Yes,that is true.I want to keep it simple and regular source of income for her so that she can manage her money by herlself without paying/filing any tax.

Thanks for reading and Please suggest the best way of it.

Sam

2 replies on this article “Fixed deposite for senior citizen”

  1. bemoneyaware says:

    Ashal has answered point by point so will just summarise Don’t get confused..take it step by step. You have reached the right forum.

    Inheritance is not taxed but please keep proof of inheritance. You can also gift money to your mother which is not taxable.(But once you gift money to her it becomes her money and she can spend /give to whom ever she wants so take a conscious decision..complicates things if siblings are in picture)

    Fixed Deposits are very popular among retirees and FDs feature in almost every senior citizens investment portfolio. Cons of investing in FD are:

    Interest from Fixed Deposit is fully taxable(not principal)
    TDS(Tax is deducted at Source) if interest from a FD exceeds 10,000 Rs. TDS is deducted at rate of 10%.

    If 20 lakh is invested for 1 year at 10% (cumulative option i.e interest + principal is received on maturity) then using our calculator Fixed deposit calculator (with quarterly compounding)
    Maturity Value:22,07,625.78

    Interest :2,07,625.78

    Depending on interest rate and tenure (time period of Fixed deposit )maturity value will be different.

    If your mother is not a senior citizen (less than 60 years of age) she can a tax free income of 2,00,000 but if she is senior citizen limit increases to 2.5 lakh

    Tax will be on 2,07,625.78 TDS if deducted by bank will be at 10%.
    To avoid TDS being cut by bank every financial year beginning (Apr ) fill form 15G/H.

    This is explained in detail with pictures in our article
    Senior Citizen,Fixed Deposits and Tax

    Other than FD you can explore options like
    Debt mutual funds : Current returns from debt mutual funds are 8% to 10% per annum.
    Post office – MIS scheme: This is one of the best options for investment for senior citizens. One can invest for 5 years and get monthly interest credited to their account. Current interest rates on Post office MIS scheme is 8.5 % per annum.
    Senior Citizen Savings Scheme (SCSS) Account: This is a very good saving scheme for senior citizens offered by banks and Post offices and the interest is 9.3% interest per annum. The good feature is interest is compounded every quarter. Means the interest rate would be still higher. The minimum investment is Rs. 1,000 and max is Rs. 15 lacs and lock-in period is 5 years.
    Investment in gold

  2. Dear Sam, I’m trying to answer your queries.

    1)Will 10 lakhs inherited by my mother be considered as income for her this year ? And she owe tax for this according to slab?
    No, the inherited amount is tax free. The income generated from the inherited amount ‘ll become taxable if it fits in taxable category.

    2)What if I add my 10 lakhs and make it 20 lakhs for FD ? Any tax implication for my mother ?Any limit for gift ?
    You can gift your own 10L Rs. & make it 20L Rs. the full 20L Rs. ‘ll become your mother’s capital & she can invest as per her own choice. Now the income generated from this 20L ‘ll be her income & ‘ll be taxed in her own name.

    3)How much money can she invest in FDs so that It doesn’t create tax implications.I don’t want to take overhead of filing her income tax.I heard there is no need to file income tax under certain conditions ?
    If she is less than 60Y, age the income limit ‘ll be 2L Rs. For age 60& above the income limit ‘ll be 2.5L Rs. Calculate on your own for how much interest rate, your mother can remain below the zero tax bar.

    4)What is the procedure so that there will not be TDS,I simply want to avoid paying TDS and then claiming next year.
    If she is below 60Y old, submit form 15G every year in Bank in the month of April & if she is more than 60Y, submit form 15H. No TDS ‘ll be applied after the form submission

    5)Does Principle and Interest,both accounts for tax calculation ? Suppose the above 20 lakhs are fixed in 2012 and she earns 2 lakhs interest in 2013 so what amount will be taxable ? Taxable 20 lakhs in 2012 and Tax on 2 lakhs next year ?
    Only the income which is 2L Rs. ‘ll be subject to tax not the basic capital.

    My personal opinion – If your idea is to prepare a cushion for her future, Do not invest full 20L Rs. in to bank FDs. Invest only 5L Rs. there. For remaining 15L Rs. invest in debt funds & do not redeem in between for few years, if no need of income is there.

    Thanks

    Ashal

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