Fixed Deposits (FDs) are one of the most popular investment options in India, providing a safe and stable source of income. However, the interest earned on FDs is subject to income tax, which has been a point of concern for many investors. In the latest Union Budget 2025, the Indian government has revised the tax exemption limits on FD income, making significant changes that impact both general and senior citizens.
Income Tax on FD
| Aspect | Details |
|---|---|
| TDS Threshold (General Citizens) | Increased from ₹40,000 to ₹50,000 |
| TDS Threshold (Senior Citizens) | Increased from ₹50,000 to ₹1,00,000 |
| Tax-Free Interest Income | Up to ₹12 lakh under new tax regime |
| TDS Rate | 10% if PAN is provided; 20% if not |
| Form 15G/15H | Can be submitted to avoid TDS if below taxable income |
| Effective From | April 1, 2025 |
| Official Source | Income Tax Department |
The government’s latest revision of income tax rules on FD interest is a welcome relief for depositors, especially senior citizens, who now enjoy higher exemption limits.
By understanding these new tax rules and using smart financial strategies, you can maximize your FD earnings while minimizing tax liability. Ensure you submit the necessary forms and structure your investments efficiently to make the most of these changes.
Understanding the Tax on Fixed Deposits
Fixed Deposit interest is considered “Income from Other Sources” under the Income Tax Act. This means it is taxed as per the investor’s applicable tax slab.
However, banks deduct Tax Deducted at Source (TDS) before crediting interest to your account. Until now, the TDS deduction thresholds were relatively low, causing inconvenience to many depositors.
With the latest changes, taxpayers can now earn more interest without facing immediate TDS deductions, helping improve liquidity and financial planning.
see also: How to Get More Than 20 Lakhs on Investing 10 Lakhs in the Post Office FD 5-Year Scheme
New TDS Exemption Limits: What Has Changed?
The Indian government has increased the TDS exemption limits for both general taxpayers and senior citizens.
1. For General Taxpayers (Below 60 Years)
- The previous TDS threshold for FD interest was ₹40,000 per year.
- This has now been increased to ₹50,000 per year.
- If the total interest earned from all FDs in a financial year is below ₹50,000, no TDS will be deducted.
2. For Senior Citizens (60 Years and Above)
- Earlier, senior citizens enjoyed a higher TDS exemption of ₹50,000.
- This limit has now been doubled to ₹1,00,000 per year.
- Any FD interest earned up to ₹1 lakh annually will not be subject to TDS.
- Section 80TTB allows senior citizens to claim a deduction of up to ₹50,000 on interest income, further reducing tax liability.
Example: If a senior citizen earns ₹90,000 in interest from FDs in a year, no TDS will be deducted. However, if they earn ₹1,20,000, TDS will apply only to the excess ₹20,000.
How to Avoid TDS on FD Interest?
While TDS is automatically deducted when the interest exceeds the exemption limit, there are ways to avoid or reduce TDS legally:
1. Submit Form 15G/15H
- Form 15G (for general taxpayers) and Form 15H (for senior citizens) can be submitted to the bank.
- This declaration states that your total taxable income is below the tax exemption limit.
- If approved, the bank will not deduct TDS, even if the interest exceeds the threshold.
2. Split FD Investments Across Multiple Banks
- Instead of keeping a large FD in one bank, spread your investments across different banks.
- This way, the interest earned from each bank stays below the TDS threshold, preventing deductions.
3. Choose Cumulative Fixed Deposits
- In cumulative FDs, interest is compounded and paid at maturity, rather than yearly.
- Since there is no annual payout, TDS deduction is postponed until maturity.
4. Invest in Tax-Free Bonds and Alternatives
- Government tax-free bonds, PPF, and SCSS can offer better tax-efficient returns.
- These instruments provide secure investment options with better tax benefits.
Additional Strategies to Maximize Savings
1. Opt for Joint Fixed Deposits
If you invest jointly with a lower-income earning family member, the TDS burden can be reduced as the tax liability will be lower.
2. Consider Senior Citizen Savings Scheme (SCSS)
SCSS provides tax deductions under Section 80C and higher interest rates than regular FDs.
3. Keep Track of Form 26AS
Always check your Form 26AS on the Income Tax website to ensure that TDS deductions are correctly updated.
see also: SBI Amrit Vrishti FD Scheme
Income Tax on FD FAQs
1. How much FD interest is tax-free in 2025?
For general citizens, up to ₹50,000 of interest is exempt from TDS. For senior citizens, this exemption limit is ₹1 lakh.
2. What is the new TDS rate for FD interest?
The TDS rate remains 10%, provided you have submitted your PAN card to the bank. If PAN is not provided, TDS is deducted at 20%.
3. Can I avoid TDS deduction on FD interest?
Yes, by submitting Form 15G/15H, keeping FDs in different banks, or opting for cumulative FDs.
4. Are post office FDs also affected by the new rules?
No, post office fixed deposits do not have TDS deductions, but the interest earned is still taxable.
5. When will these new rules come into effect?
The new TDS limits and exemptions will be applicable from April 1, 2025.
