TDS Limit on Fixed Deposit Interest Hiked for General and Senior Citizens in Budget 2025

In the Union Budget 2025, the government increased the tax deduction at source (TDS) limit for interest earned on fixed deposits. For general citizens, the threshold rises to ₹50,000 from ₹40,000, while for senior citizens, it is raised to ₹1 lakh, doubling the previous limit.

This move aims to simplify tax deductions and reduce the tax burden on depositors, particularly retirees. The change takes effect in April 2025.

Union Budget 2025 TDS Reforms

In a significant change announced in the Union Budget 2025, the government has proposed raising the TDS (Tax Deducted at Source) threshold for interest income from fixed deposits (FDs).

From April 2025, non-senior citizens can claim the first ₹50,000 of interest income without TDS, up from ₹40,000. For senior citizens aged 60 or above, the exemption increases from ₹50,000 to ₹1 lakh. This move aims to reduce the tax burden on FD holders, especially retirees who rely on FD interest for income.

How TDS Works on Fixed Deposit Interest

TDS applies when the interest earned on a fixed deposit exceeds the set threshold for the financial year. Banks deduct TDS at a rate of 10% if the account holder provides their PAN details. Without a PAN, the deduction rate rises to 20%.

Let’s take the example of Arun, a 40-year-old resident of Pune. He earns ₹80,000 annually in FD interest. With the revised TDS limit of ₹50,000, banks will deduct 10% TDS on the amount exceeding ₹50,000, i.e., ₹30,000. Therefore, TDS of ₹3,000 (10% of ₹30,000) will be deducted from his interest earnings.

For senior citizens like Arun’s father, who is 65 years old, the limit has been raised to ₹1 lakh. Therefore, he would not have any TDS deductions on interest income of up to ₹1 lakh, which is a huge relief, especially for retirees.

Tax Benefits and Practical Implications of Budget 2025

The changes proposed in Budget 2025 simplify the tax filing process and offer senior citizens a higher exemption limit, reducing the need for tax filings if the interest falls under the new limits. The reform allows depositors to retain more of their interest earnings.

Arun, in this case, would be able to claim the TDS deduction when filing his income tax returns. Additionally, with the tax exemption for senior citizens FD earnings up to ₹1 lakh, retirees will experience increased financial security and a reduced tax burden.

Conclusion

Budget 2025’s hike in TDS thresholds for fixed deposit interest is a significant step toward easing the tax burden on both senior and non-senior citizens. This change will not only provide greater financial relief but also streamline the process of tax deductions.

By increasing the limit, especially for senior citizens, the government is ensuring that more money stays in the hands of individuals who depend on interest income.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.