I am 84 year old senior citizen. I withdrew two fixed deposit prematurely. Bank levied penal charges on premature withdrawal. Can I claim penal interest as deduction while filling ITR returns. Pl guide
Ans: No, unfortunately, you cannot claim the penalty levied on premature withdrawal of your fixed deposits (FDs) as a deduction while filing your Income Tax Return (ITR).
Here's why:
Income vs. Expense: The penalty on FD withdrawal is considered an expense incurred for breaking the terms of the deposit agreement. It's not directly related to earning income from the FD interest.
Tax Deductions: Income tax deductions are allowed for expenses incurred for generating taxable income. The penalty on FD withdrawal doesn't fall under this category.
Taxation on FD Interest for Senior Citizens:
Even though you cannot deduct the penalty, there might be some relief on the interest income itself:
Section 80TTB: If your total interest income from all FDs and Savings accounts is less than ?50,000 per year, you can claim a deduction under Section 80TTB of the Income Tax Act. This eliminates tax liability on that interest income.
No TDS for Senior Citizens: For senior citizens (above 75 years old), banks don't deduct TDS (Tax Deducted at Source) on FD interest up to ?50,000 per year from a specified bank where you receive your pension.
Recommendations:
Plan for Premature Withdrawals: If you foresee needing the money before the FD matures, consider shorter tenure FDs or opting for partially withdrawable FDs to avoid penalties.
Explore Tax-Saving Options: Look into tax-saving fixed deposits or senior citizen savings schemes (SCSS) that offer better interest rates and may not have high penalties for premature withdrawal.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
