How the ₹1 Lakh TDS Limit Affects Senior Citizens’ FD Earnings

The government has raised the Tax Deducted at Source (TDS) limit on fixed deposit (FD) interest for senior citizens from ₹50,000 to ₹1 lakh per year. This change, effective from April 1, 2025, aims to reduce the administrative burden on senior citizens. However, tax experts emphasise that this is only a procedural change, and senior citizens must still report their total interest income in their Income Tax Returns (ITR).

TDS Limit Increased, But Tax Obligation Remains

Previously, banks deducted TDS if a senior citizen earned more than ₹50,000 in annual FD interest. Now, no TDS will be deducted if the interest is up to ₹1 lakh per year from a single bank. While this means fewer deductions at the source, it does not exempt senior citizens from paying tax on their income.

Senior citizens must still report their full interest earnings in their ITR to avoid penalties. The Income Tax Department tracks high-value transactions, so underreporting can result in scrutiny and fines.

Why Accurate Income Disclosure is Important

Banks and financial institutions report interest payments to the tax authorities. If a taxpayer underreports their interest income, it may be flagged, leading to tax scrutiny.

For example, if a senior citizen earns ₹1.2 lakh in FD interest but only reports ₹1 lakh, this discrepancy may trigger an inquiry. If found guilty of intentional underreporting, the taxpayer could face a penalty of up to 200% of the evaded tax.

How Form 15H Can Help

Senior citizens whose total taxable income is below ₹3 lakh per year can submit Form 15H to their bank. This prevents TDS deductions. However, this does not mean they are exempt from tax. If their total income exceeds the exemption limit, they must still pay tax on their interest income.

For example, if Mr Malhotra earns ₹90,000 from his pension and ₹80,000 from FD interest (totalling ₹1.7 lakhs), he can submit Form 15H to avoid TDS. But he must still report this income while filing his ITR.

Ways to Minimise TDS on FD Interest

Senior citizens who expect to earn over ₹1 lakh in FD interest per year can use smart financial strategies to reduce TDS deductions:

1. Spread FDs Across Multiple Banks – If total interest earnings exceed ₹1 lakh, splitting FDs between different banks can keep interest from any one bank below the TDS threshold.
2. Opt for Periodic Interest Payments – Choosing monthly or quarterly interest payouts instead of cumulative interest can help manage taxable income.
3. Apply for a Lower Tax Deduction Certificate – Senior citizens can request a certificate from the Income Tax Department to reduce TDS on their interest earnings.

For instance, if Mr Tyagi plans to invest ₹20 lakh in FDs at an 8% interest rate, a single FD would generate ₹1.6 lakh in interest, attracting TDS. However, by splitting the investment across two banks, earning ₹80,000 from each, he can avoid TDS deductions.

Key Takeaways

• The new ₹1 lakh TDS threshold helps reduce tax deductions at the source but does not exempt interest income from taxation.
• Senior citizens must report all their interest earnings in their ITR.
• Filing Form 15H can prevent TDS for those with income below ₹3 lakh per year.
• Distributing FDs across multiple banks or opting for periodic interest payments can help minimise TDS deductions.

While this new rule makes tax filing easier, senior citizens must remain vigilant about compliance to avoid penalties.

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