New TDS Rules on Fixed Deposits: FDs are now in higher demand, interestingly, for the FD investors. The Union Budget 2025 has given an alteration in favor of FD investors. The increase in the TDS limit on FD interest for non-senior citizens from ₹40,000 to ₹50,000 per financial year results in less tax burden and more interest that you can take home.
How do these things affect your savings? The explanation follows.
Understanding the New TDS Rules on Fixed Deposits
What is TDS on Fixed Deposits?
TDS on Fixed Deposits is taxation at source in advance, taken by banks on the deduction of the interest on your FD, whenever it exceeds a prescribed limit. Earlier, when the FD interest of an investor crossed ₹40,000 in a financial year, a TDS of 10% was applied (in case the PAN is linked). Hence, with the new rule, TDS will apply only if the interest is above ₹50,000.
Key Changes in Budget 2025
- For Non-Senior Citizens: The TDS threshold has been hiked from ₹40,000 to ₹50,000.
- For Other Cases: This raises the TDS limit from ₹5,000 to ₹10,000 (applicable for non-FD interest income).
- Effective Date: The rule is effective from April 1, 2025.
This change primarily aims to ensure that small investors and conservative savers get to retain more of their hard-earned money.
How does it work in favour of FD Investors?
Lower TDS; More Interest in Hand
With TDS allowed on FD interest over and above ₹50,000, investors not facing tax on TDS deductions for amounts below ₹50,000 FD interest will benefit:
- Liquidity in their hands is more.
- Good cash flow for re-investment or expenditure.
- Less tax burden for middle-class citizens.
Maximizing Returns for Conservative Investors
Many investors seek returns without risk. The higher TDS exemption will enable taxpayers to absorb the maximum possible interest without worrying about immediate TDS deduction.
An Important Factor for Joint FD Holders
In case of an FD in a joint account, TDS will be deducted according to the primary account holder’s PAN. Hence, due diligence in documentation is required to avoid excessive TDS loss.
Other Important TDS Rules That You Must Know
- Rate of TDS: At 10% if PAN is linked; at 20% if PAN is not given.
- Timing of Deduction: TDS is deducted at the end of the financial year; thus, not at maturity of the FD.
- Tax Liability: TDS is just an advance payment of tax, so you will have to file an income tax return and square off your tax liability.
Smart Tax-Saving Strategies for FD Investors
- Splitting FDs among Banks: This means if your interest exceeds ₹50,000, spread the investment across different banks to remain under the TDS limit.
- Submission of Form 15G/15H: In case your total income is below the taxable limits, these forms will help you avoid TDS altogether.
- Investment in Senior Citizen FDs: Senior citizens have a higher TDS exemption limit, which is ₹50,000 as opposed to the earlier limit of ₹40,000, a great deal for retired people.