If you or someone in your family is a senior citizen and invests in bank FD, then this news is very useful for you. In Budget 2025, the government has doubled the TDS limit for senior citizens.
Now TDS will not be deducted on interest received from bank fixed deposits (FD) as long as the interest is limited to Rs 1 lakh per annum. Earlier this limit was Rs 50,000. That is, now if senior citizens invest in FD with planning, then they can earn interest up to Rs 99,999 annually and avoid TDS.
For this, it is important that the FD amount and the bank’s interest rate are chosen correctly. Senior citizens just have to keep in mind that their total interest should not exceed Rs 1 lakh, according to the interest rate.
How much should one invest according to the interest rate?
- If the interest rate is 8% (like the one offered by Central Bank of India), then investing Rs 12,13,110 will fetch an annual interest of Rs 99,999.
- If the interest rate is 8.55% (like the one offered by Bandhan Bank), then the annual interest on an investment of Rs 11,32,751 will be Rs 99,999.
- If the interest rate is 9.5% (like the one offered by Unity Small Finance Bank), an FD of Rs 10,15,864 will fetch an interest of Rs 99,999 per annum.
In which FD TDS will not be deducted?
If you have made a cumulative FD, in which the interest is reinvested, then TDS will not be deducted in the first year. But in the second year the interest will exceed 1 lakh because the interest of the first year is also added to the principal. In such a case, TDS will start being deducted from the second year. Whereas in quarterly payroll out FD, the interest comes into the account every three months and the principal remains the same. In such a case, the interest does not exceed 1 lakh and TDS is not deducted.
When will the new rules come into effect?
This new rule will come into effect from April 2025. All banks and financial institutions will have to update their systems so that senior citizens can avail the correct TDS limit.
Things to keep in mind
- It is important to understand that no TDS is deducted on interest up to Rs 1 lakh does not mean that it is tax free. If your total income is more than the tax limit, then you will have to pay income tax.
- If you choose the new tax regime, in which there is no tax on income up to Rs 12 lakh, then you will not have to pay tax on interest.
- You can see the details of interest income and TDS in AIS (Annual Information Statement) or TIS/26AS on the income tax portal.
Best FD Options for Senior Citizens
- Central Bank of India: 8% interest, 1111 days tenure
- Bandhan Bank: 8.55% interest, 1 year tenure
- Unity Small Finance Bank: 9.5% interest, 1001 days tenure
With smart investment, you can not only avoid TDS but also earn a good amount of interest. Therefore, it is important to understand the interest rates and terms carefully before making an FD.
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