The government has recently updated the rules for Tax Deducted at Source (TDS) on Fixed Deposits (FDs), impacting millions of depositors across the country. These changes aim to provide relief to small depositors and senior citizens by increasing the exemption limits and ensuring a more taxpayer-friendly approach.
If you earn interest from fixed deposits, understanding these new TDS rules is crucial to maximize your returns and avoid unnecessary deductions. In this article, we break down the new TDS rules, how they impact different groups, and how you can optimize your tax savings.
TDS on Fixed Deposits New Rules
| Factor | Old Rules | New Rules (2025 Onwards) |
|---|---|---|
| TDS Threshold for General Citizens | ₹40,000 per year | ₹50,000 per year |
| TDS Threshold for Senior Citizens | ₹50,000 per year | ₹1,00,000 per year |
| TDS Rate (With PAN) | 10% | 10% |
| TDS Rate (Without PAN) | 20% | 20% |
| Forms to Avoid TDS Deduction | Form 15G, Form 15H | Same |
| Official Source | Income Tax Department |
The new TDS rules on fixed deposits offer much-needed relief, especially for senior citizens and small depositors. With the increased threshold limits, fewer people will face TDS deductions, resulting in higher take-home interest earnings.
To maximize your savings, make sure to submit the necessary forms, monitor your FD interest, and diversify your deposits. By planning strategically, you can minimize tax deductions and ensure optimal returns on your investments.
Understanding TDS on Fixed Deposits
What is TDS on Fixed Deposits?
TDS (Tax Deducted at Source) is a tax deducted by banks before they credit your FD interest earnings. The deducted tax is deposited with the government, and you can adjust it when filing your income tax return (ITR).
For example, if you earn ₹60,000 as interest and the TDS rate is 10%, the bank will deduct ₹6,000 and credit ₹54,000 to your account. You can then claim this as a tax credit when filing your returns.
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New TDS Rules for 2025: How They Impact You
The Union Budget 2025 introduced higher TDS thresholds, which means fewer people will be subject to automatic tax deductions on their fixed deposit interest.
1. Increased TDS Thresholds
- For General Citizens (Below 60 Years): The TDS threshold has been raised from ₹40,000 to ₹50,000 per financial year.
- For Senior Citizens (60+ Years): The threshold has been doubled to ₹1,00,000 per financial year.
Impact: If your annual FD interest is below these limits, no TDS will be deducted by the bank.
2. TDS Rates Remain the Same
- If you provide your PAN, the bank will deduct 10% TDS on interest above the threshold.
- If you don’t provide your PAN, TDS increases to 20%.
3. Forms to Avoid TDS Deduction
If your total income is below the taxable limit, you can submit Form 15G (for general taxpayers) or Form 15H (for senior citizens) to the bank. This prevents TDS deduction at the source.
How to Minimize TDS on Fixed Deposits?
To legally avoid TDS deductions on your FD interest, consider these strategies:
1. Distribute FDs Across Banks
If your interest earnings from one bank exceed the threshold, consider opening FDs in multiple banks to keep individual earnings below the TDS limit.
2. Use Family Members’ Accounts
You can invest in FDs in the names of your spouse, parents, or children to distribute the interest income and stay below the TDS limits.
3. Submit Form 15G / Form 15H
If you don’t have taxable income, submit these forms at the start of the financial year to ensure no TDS deduction.
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4. Opt for Tax-Saving FDs
Banks offer tax-saving FDs with a 5-year lock-in period. While interest is taxable, these deposits provide deductions under Section 80C, reducing overall tax liability.
5. Choose Monthly or Quarterly Payout FDs
Instead of reinvesting the interest, opt for monthly or quarterly payout FDs, which helps in reducing the total accumulated interest subject to TDS.
Example Scenarios for Understanding TDS Impact
Scenario 1: General Citizen with ₹45,000 FD Interest
- Old Rule: TDS was deducted as the threshold was ₹40,000.
- New Rule: No TDS, as the new threshold is ₹50,000.
Scenario 2: Senior Citizen with ₹90,000 FD Interest
- Old Rule: TDS was deducted on amounts exceeding ₹50,000.
- New Rule: No TDS, as the new threshold is ₹1,00,000.
Scenario 3: Senior Citizen with ₹1,10,000 FD Interest
- TDS is deducted on ₹10,000 (amount exceeding ₹1,00,000) at 10% = ₹1,000.
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TDS on Fixed Deposits New Rules FAQs
1. How do I know if my bank has deducted TDS?
Check your bank statement or Form 26AS on the Income Tax website to see TDS deductions.
2. Can I claim a refund if my bank deducted TDS?
Yes! If your total tax liability is lower than the deducted TDS, you can claim a refund when filing your ITR.
3. Does TDS apply to Post Office Fixed Deposits?
No. Post Office FDs are exempt from TDS, but interest income is still taxable.
4. Will TDS be deducted on joint FDs?
Yes. TDS is deducted in the name of the primary account holder.
5. What happens if I don’t submit Form 15G or 15H?
Your bank will deduct TDS automatically if your interest exceeds the threshold.
6. Are corporate FDs subject to TDS?
Yes, TDS is applicable on corporate fixed deposits if interest exceeds the prescribed threshold.
