The Union Budget 2025 has proposed an increase in the Tax Deduction at Source (TDS) limit on interest earned from fixed deposits for general (non-senior) citizens. This is a good news for all the citizens in India as it will help them in savings some money.
Right now the TDS Limit on FD interest is Rs.40,000. The limit will be raised from the current ₹40,000 to ₹50,000 per financial year. The changes will come into effect from April 1, 2025. Now let’s understand what is TDS and its rules.
Understanding TDS on Fixed Deposits
Banks deduct TDS when the interest paid to an account holder exceeds a certain threshold in a financial year. This limit varies for senior citizens and general account holders. Currently, banks apply a 10% TDS rate on fixed deposit interest if the depositor’s PAN is available. If PAN details are missing, the rate increases to 20%.
Financial institutions or banks offering fixed deposit investment schemes are responsible for deducting TDS on interest income. The TDS deduction happens automatically at the end of each financial year when the interest is credited to the account, rather than at the time of maturity of the fixed deposit.
TDS Rules for Joint Fixed Deposit Accounts
For fixed deposits held in joint names, the primary account holder is responsible for TDS deductions. The second holder does not face any TDS liability related to the fixed deposit.
When is TDS Applicable?
- TDS on fixed deposit interest is deducted only when the total interest earned exceeds the specified threshold in a financial year.
- The bank or financial institution holding the fixed deposit is responsible for deducting the applicable TDS.
- If the depositor has submitted Form 15G (for non-senior citizens) or Form 15H (for senior citizens), TDS will not be deducted, provided the total income is below the taxable limit.
With the new TDS threshold increase, general citizens will be able to earn up to ₹50,000 in interest from fixed deposits without facing TDS deductions from April 2025 onwards. This move is expected to benefit small investors and fixed deposit holders by reducing their tax burden.
What about Sr citizen limit it may be 1.00 lac now
From April 1, 2025, the tax deducted on senior citizens’ fixed deposits will be lower. This is because the threshold for TDS deduction has been hiked to Rs 1 lakh from Rs 50,000 currently.