Budget 2025 increases TDS limit for bank Fixed Deposits | key details inside

The Union Budget 2025 has introduced significant changes to the Tax Deducted at Source (TDS) limits for fixed deposit (FD) interest, which will benefit many taxpayers. Here’s a detailed overview of these changes, which will take effect from April 1, 2025.

Increased TDS limits

1. New Thresholds: The TDS limit for fixed deposit interest has been raised from ₹40,000 to ₹50,000 per financial year for general citizens (non-senior). This means that if the interest earned from FDs exceeds ₹50,000 in a year, banks will deduct TDS at a rate of 10% if the Permanent Account Number (PAN) is provided. If no PAN is available, the rate increases to 20%.

2. Senior Citizens' Benefits: For senior citizens, the TDS limit will see a more substantial increase from ₹50,000 to ₹1 lakh. This change allows senior citizens to earn more interest income without facing TDS deductions, making fixed deposits a more attractive option for them.

3. Other Cases: For other types of deposits and cases not related to banks or post offices, the TDS threshold is also increasing from ₹5,000 to ₹10,000. This adjustment aims to reduce the number of taxpayers affected by TDS deductions on smaller amounts.

Why these changes matter

The increase in TDS thresholds is part of the government's broader effort to ease the tax burden on small taxpayers and encourage savings:

- Encouraging Savings: By raising the TDS limits, the government aims to make fixed deposits and other savings instruments more appealing, especially for those who rely on interest income.
- Simplifying Compliance: These changes are designed to simplify tax compliance for individuals and reduce the administrative burden associated with filing tax returns for small amounts.
- Support for Senior Citizens: The higher limit for senior citizens is particularly significant as many depend on fixed deposits for their retirement income. This move helps them retain more of their earnings without dealing with TDS complications.

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How TDS works on fixed deposits

- TDS Deduction Process: Banks are responsible for deducting TDS on FD interest at the end of each financial year when the interest is credited to the account. This deduction occurs automatically if the threshold is exceeded.
- Joint Accounts: In joint accounts, TDS is deducted in the name of the primary account holder. The second holder does not have any liability regarding TDS deductions.
- Tax Refunds: If an individual's total income falls below the taxable limit, they can claim a refund of any TDS deducted by filing their Income Tax Return (ITR).

In summary, these adjustments in Budget 2025 regarding TDS limits on fixed deposits reflect a positive shift towards supporting individual taxpayers and promoting savings. The increased limits will provide greater financial flexibility and security for many citizens, especially senior citizens who depend on interest income from their savings.