Fixed deposits (FDs) have long been one of the most trusted investment options for Indian citizens, especially retirees and conservative investors. The recent announcement by the government, stating that there will be no tax on fixed deposits up to ₹ 50 lakh, is a significant relief for many. This move ensures that middle-class and senior citizens can earn a steady income without worrying about tax deductions on their FD interest.
With inflation and cost of living rising, any policy that helps citizens save more money is a welcome move. In this article, we break down everything you need to know about tax exemptions on FDs, how it impacts you, and how you can maximize your savings effectively.
No Tax on Fixed Deposits Up to ₹ 50 Lakh
| Feature | Details |
|---|---|
| Tax-Free FD Limit | Interest earned on FDs up to ₹ 50 lakh will not be taxed. |
| TDS Exemption for Senior Citizens | No TDS if interest income is below ₹ 1,00,000 annually. |
| TDS Exemption for Others | No TDS if interest income is below ₹ 50,000 annually. |
| Form 15G/15H | Can be submitted to banks to prevent TDS deduction. |
| Who Benefits? | Common citizens, retirees, and those dependent on FD interest. |
| Effective From | Immediate effect, based on latest government regulations. |
The government’s move to remove tax on fixed deposits up to ₹ 50 lakh is a game-changer for investors, especially senior citizens. It ensures better savings and financial security while making FDs an even more attractive investment option. To maximize your savings, ensure you submit the right forms, distribute investments wisely, and stay updated with tax policies.
Understanding Taxation on Fixed Deposits
Fixed deposits are one of the safest investment options, offering guaranteed returns. However, traditionally, interest earned on FDs was taxable under the income tax slab of the investor. This meant that people with high FD investments had to pay a significant portion of their earnings as tax.
Previously:
- Banks deducted Tax Deducted at Source (TDS) if interest exceeded ₹ 40,000 (for non-senior citizens) and ₹ 50,000 (for senior citizens).
- Interest earnings were added to an individual’s taxable income and taxed as per their tax slab.
- Many investors had to file Income Tax Returns (ITR) even if their only source of income was FD interest.
With the new no-tax rule on FDs up to ₹ 50 lakh, investors can enjoy tax-free earnings, provided their annual interest income does not exceed the exemption limit.
see also: SBI Special Scheme for Senior Citizens
How Does This Change Benefit Investors?
The new tax exemption on FD interest income brings multiple benefits:
- More Savings: Investors can now earn interest without worrying about tax deductions.
- Senior Citizen Relief: Retired individuals who depend on FD interest for their expenses will benefit the most.
- No Need for ITR (If Below ₹ 4 Lakh Income): If FD interest is your only income and remains under ₹ 4 lakh per year, filing ITR is not mandatory.
- Encourages Bank Deposits: More people might invest in FDs instead of riskier alternatives.
How to Avoid TDS Deduction on Your FD?
Even though interest on FDs is now tax-free up to a limit, banks still deduct TDS if your total interest income exceeds the threshold. However, there are legal ways to avoid TDS deductions.
Steps to Prevent TDS on FD Interest:
Post Office's Amazing Scheme: Will You Get Tremendous Returns on Investing ₹2000, ₹3000, ₹5000 Every Month?
- Submit Form 15G (for Individuals Below 60 Years):
- If your total taxable income is below the exemption limit, fill out Form 15G and submit it to the bank.
- This ensures that no TDS is deducted from your FD interest.
- Submit Form 15H (for Senior Citizens):
- Senior citizens (above 60) can fill Form 15H to prevent TDS deductions.
- You must submit it at the beginning of every financial year.
- Distribute FDs Across Banks:
- If you have multiple FDs, consider distributing them across different banks to stay under the TDS threshold at each bank.
- Opt for Cumulative FDs:
- In cumulative FDs, interest is compounded and paid at maturity. This can help reduce yearly interest earnings, preventing unnecessary TDS deductions.
see also: FD Laddering A Smart Investment Strategy for Maximizing Returns
Comparison: Old vs New Taxation on FDs
| Feature | Old Tax Rules | New Tax Rules (2025) |
|---|---|---|
| Taxable Interest Limit | Any amount | No tax up to ₹ 50 lakh |
| TDS Threshold (Senior Citizens) | ₹ 50,000 | ₹ 1,00,000 |
| TDS Threshold (Others) | ₹ 40,000 | ₹ 50,000 |
| Form 15G/15H Requirement | Needed for exemption | Still required for banks to not deduct TDS |
| Mandatory ITR Filing | If taxable income exceeded limit | Not required if total income is below ₹ 4 lakh |
No Tax on Fixed Deposits Up to ₹ 50 Lakh FAQs
1. Does this mean I don’t have to pay any tax on FD interest?
If your total FD interest income remains within the prescribed limits, you will not have to pay tax. However, if it exceeds the threshold, it will be added to your taxable income.
2. Do I need to submit Form 15G/15H even after this change?
Yes, you should still submit these forms to ensure that the bank does not deduct TDS unnecessarily.
3. What happens if my total FD amount exceeds ₹ 50 lakh?
Only the interest earned up to the prescribed limit is tax-free. If you earn beyond the exemption limit, the additional amount will be taxed.
4. Are corporate FDs also tax-free under this rule?
This rule applies only to bank FDs. Corporate FDs may still attract tax based on income slabs.
