Mumbai: The government has raised the exemption limit of tax deducted at source (TDS) on interest earned from deposits under the Senior Citizens Savings Scheme, 2004, from Rs5,000 to Rs10,000.

The tax exemption threshold has been enhanced from Rs5,000 earlier to Rs10,000. The change comes into with effect from June 1 following a notification to this affect, an official release said.

"No tax will be required to be deducted at source under section 194A of Income Tax Act on interest credited or paid or likely to be credited or paid on deposit made under Senior Citizens Savings Scheme, 2004 where such interest does not exceed Rs10,000 during a financial year," the release said.

The enhanced exemption limit of Rs10,000 will also apply to payments of interest by banking companies and cooperative societies.

The decision will benefit senior citizens who have made deposits under such schemes with banks and cooperative societies.

A depositor under the scheme will have to pay tax at a rate of 10 per cent only if the interest income from a Senior Citizen Savings Scheme exceeds Rs10,000 from June.

The scheme, launched in 2004, offers nine per cent interest to depositors aged 60 years and above. A depositor can invest up to Rs15 lakh in the scheme that has a lock-in period of five years.