Finance Minister Nirmala Sitharaman just delivered the budget for 2025. This budget made important modifications to TDS to streamline tax compliance and enhance cash flow. The TDS limit on interest income for senior citizens doubled from Rs 50,000 to Rs 1 lakh. We raised the overall maximum for bank interest to Rs 50,000 and, for other situations, to Rs 10,000.
The proposed amendment will only deduct tax from FD and RD income sources for the general public once their income surpasses Rs 50,000. The government aims to allocate more funds to the elderly and middle-class population.
Restrictions for Elderly People
Under this amendment, the tax deduction for elderly persons will be applicable only if their interest income from savings accounts, fixed deposits (FD), and repeating deposits (RD) surpasses Rs 1 lakh in a financial year. Right now, the general public’s limit is Rs 40,000; elderly citizens have a maximum of Rs 50,000. This modification will be effective from April 1, 2025.
India uses Tax Deduction at Source (TDS), a governmental mechanism that deducts taxes at the source of income. A person (deductor) must pay the tax and deposit it into the central government account when a stipulated payment is made to another person. The individual from whom income taxes have been deducted at source qualifies for credit for the deducted amount. The deductor can issue Form 26AS or a TDS certificate to support this claim.
Tax deducted at source (TDS) on fixed deposits is the section of the investor’s premium and interest the bank withholds on FD maturity. Usually determined using a defined percentage of the final payout, the amount is paid to the government as tax. It then gets entered into the recipient’s income tax records and matched with their tax returns. The government has adjusted Tax Deducted at Source (TDS) to simplify tax compliance.
The senior citizen TDS exemption ceiling on interest has been raised from Rs 50,000 to Rs 1 lakh. The exemption limit for other people is now Rs 50,000 when the payer is a post office, cooperative organization, or bank. Different cases call for Rs 10,000.
How does FD calculate TDS?
Interest earned on fixed deposits (FDs) is taxable and classified as “income from other sources.” Tax deduction at source (TDS) on FDs is calculated based on interest income generated during the financial year, considering elements such as interest rate, deposit amount, tenure, and relevant tax slab.
The bank will not tax your fixed deposit if your yearly income is less than Rs 2.5 lakh. Some financial institutions may request that you submit Form 15G or 15H to benefit from the tax deduction.
FD’s annual interest income of less than Rs 40,000 is not liable to TDS. If interest income exceeds Rs 40,000, a TDS of 10 percent applies. If you fail to supply a PAN card, the bank has the right to withhold twenty percent of the total TDS.
Senior persons must follow the same guidelines as other account holders, except for their interest income being more than Rs 50,000 instead of Rs 40,000.
