Fixed depositors - your TDS limit hiked to Rs 50,000, Rs 1 lakh for seniors

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The Union Budget 2025 has proposed an increase in the tax deduction at source (TDS) threshold on interest earned from fixed deposits for general (non-senior) citizens. The limit will rise from the current Rs 40,000 to Rs 50,000 per financial year starting April 1, 2025.

 

How fixed deposit interest is taxed

 

Interest earned on fixed deposits is taxed according to an individual’s income tax slab. The principal amount itself is not taxed.

 

“The interest is added to your total income and taxed according to your income tax slab. Banks deduct 10% TDS if the interest exceeds Rs 50,000 for senior citizens (Rs 40,000 for others). This rate rises to 20% if the PAN is not provided,” said Adhil Shetty, CEO of Bankbazaar.com.

 

From April 2025, the revised TDS threshold will apply. Let’s take Geetu, a 35-year-old resident of Noida, as an example to understand how it will work:

 

Total interest earned: Rs 75,000 annually  

TDS threshold: Rs 50,000 for general citizens (as per Budget 2025)  

TDS deducted: 10% of Rs 75,000 = Rs 7,500  

 

In this case, the TDS was deducted because the interest exceeded Rs 50,000. If Geetu’s total interest earnings were Rs 50,000 or less, no TDS would be deducted.

 

The Rs 75,000 interest will be added to Geetu’s taxable income. If her total income is below Rs 12.75 lakh, she won’t have to pay any tax and can claim the TDS deducted while filing her income tax returns next year.

 

Similarly, for senior citizens (aged 60 and above), interest income up to Rs 1 lakh is exempt from the 10% TDS deduction.

 

“The Union Budget 2025 brings much-needed simplification and relief in TDS by reducing the number of rates and thresholds, ensuring greater clarity and uniformity. A major highlight is the doubling of the tax deduction limit on interest income for senior citizens from Rs 50,000 to Rs 1,00,000, providing significant financial relief to retirees dependent on interest earnings,” said Shetty.

 

He added, “The increased tax deduction limit will apply to fixed deposits and sovereign bond earnings, ensuring that senior citizens retain more of their interest income. This move enhances returns on savings, offering greater financial security and stability for retirees. It also improves tax efficiency, reduces compliance burdens, and puts more money in the hands of senior citizens.”

 

What is TDS and how does it work?

 

Banks deduct tax at source when interest paid to account holders exceeds a specified threshold in one financial year. The threshold is different for senior and non-senior citizens.

 

< TDS applies only if interest earned on fixed deposits exceeds the threshold limit in a given financial year.

< Banks deduct TDS at a flat rate of 10% if PAN details are provided.

< The rate increases to 20% if PAN details are not available.

< In the case of joint fixed deposits, TDS is deducted in the name of the primary account holder.

< TDS deductions occur at the end of each financial year when interest is credited, rather than at the time of fixed deposit maturity.

< Interest earned on tax-saver fixed deposits is also subject to TDS deduction.

< All TDS deductions are reflected in the depositor’s PAN account.

 

The proposed changes in Budget 2025 are set to ease the tax burden on fixed deposit holders, particularly retirees, by allowing them to retain a larger portion of their interest income.

 

Take a look at the current FD rates provided by banks, as provided by PaisaBazaar

 

Small Finance Banks

NorthEast Small Finance Bank

Highest slab: 9%

Tenure: 18 months 1 day to 36 months

1-year rate: 7%

3-year rate: 9%

5-year rate: 8%

 

Suryoday Small Finance Bank

Highest slab: 8.60%

Tenure: Above 2 years to 3 years

1-year rate: 8.05%

3-year rate: 8.60%

5-year rate: 8.25%

 

Ujjivan Small Finance Bank

Highest slab: 8.25%

Tenure: 12 months

1-year rate: 8.25%

3-year rate: 7.20%

5-year rate: 7.20%

 

Utkarsh Small Finance Bank

Highest slab: 8.50%

Tenure: 2 years to 3 years; 1500 days

1-year rate: 8%

3-year rate: 8.50%

5-year rate: 7.75%

 

Private Sector Banks

Axis Bank

Highest slab: 7.25%

Tenure: 15 months to less than 2 years

1-year rate: 6.70%

3-year rate: 7.10%

5-year rate: 7%

 

Bandhan Bank

Highest slab: 8.05%

Tenure: 1 year

1-year rate: 8.05%

3-year rate: 7.25%

5-year rate: 5.85%

 

HDFC Bank

Highest slab: 7.40%

Tenure: 4 years 7 months (55 months)

1-year rate: 6.60%

3-year rate: 7%

5-year rate: 7%

 

ICICI Bank

Highest slab: 7.25%

Tenure: 15 months to 2 years

1-year rate: 6.70%

3-year rate: 7%

5-year rate: 7%

 

Kotak Mahindra Bank

Highest slab: 7.40%

Tenure: 390 days to less than 23 months

1-year rate: 7.10%

3-year rate: 7%

5-year rate: 6.20%

 

YES Bank

Highest slab: 7.75%

Tenure: 18 months to less than 24 months

1-year rate: 7.25%

3-year rate: 7.25%

5-year rate: 7.25%

 

Public Sector Banks

Bank of Baroda

Highest slab: 7.30%

Tenure: 400 days - Bob Utsav

1-year rate: 6.85%

3-year rate: 7.15%

5-year rate: 6.80%

 

Bank of India

Highest slab: 7.30%

Tenure: 400 days

1-year rate: 6.80%

3-year rate: 6.50%

5-year rate: 6%

 

Canara Bank

Highest slab: 7.40%

Tenure: 3 years to less than 5 years

1-year rate: 6.85%

3-year rate: 7.40%

5-year rate: 6.70%

 

Indian Bank

Highest slab: 7.30%

Tenure: 400 days - IND SUPER

1-year rate: 6.10%

3-year rate: 6.25%

5-year rate: 6.25%

 

Indian Overseas Bank

Highest slab: 7.30%

Tenure: 444 days

1-year rate: 7.10%

3-year rate: 6.50%

5-year rate: 6.50%

 

Punjab National Bank

Highest slab: 7.25%

Tenure: 400 days

1-year rate: 6.80%

3-year rate: 7%

5-year rate: 6.50%

 

Punjab & Sind Bank

Highest slab: 7.45%

Tenure: 555 days

1-year rate: 6.30%

3-year rate: 6%

5-year rate: 6%

 

State Bank of India

Highest slab: 7.25%

Tenure: 444 days - Amrit Vrishti

1-year rate: 6.80%

3-year rate: 6.75%

5-year rate: 6.50%

 

Union Bank of India

Highest slab: 7.30%

Tenure: 456 days

1-year rate: 6.80%

3-year rate: 6.70%

5-year rate: 6.50%