The Union Budget 2025 proposes to increase the limit for tax deduction at source (TDS) on fixed deposit (FD) interest for general citizens (non-senior).
This will take up the limit from the current ₹40,000 to ₹50,000 per financial year and will come into effect from April 1, 2025.
TDS on FDs
Banks are required to deduct tax at source when interest paid to account holders goes over the specified threshold in one financial year. At the moment, it is 10% if PAN is available.
The proposal to increase the threshold in section 194A is as below.
| Payer | Current threshold to deduct TDS | Proposed threshold to deduct TDS |
|---|---|---|
| A banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution, referred to in section 51 of that Act) | Rs. 40,000/- | Rs. 50,000/- |
| A co-operative society engaged in carrying on the business of banking | Rs. 40,000/- | Rs. 50,000/- |
| on any deposit with post office under any scheme framed by the Central Government and notified by it in this behalf | Rs. 40,000/- | Rs. 50,000/- |
| Any other case | Rs. 5,000/- | Rs. 10,000/- |
| A cooperative society referred to in clause (v) and clause (viia) of sub-section (3) of section 194A | Rs. 40,000/- | Rs. 50,000/- |
Source: Budget Memorandum
Rules and Regulations of TDS on FDs
There are certain guidelines issued by the Income Tax Department that must be abided by when it comes to the deducting TDS on Fixed Deposit interest. According to the HDFC Life website, they are as follows:
- The bank or the financial institution in which the Fixed Deposit is held is responsible for deducting TDS on FD.
- TDS on FD is deducted at a flat rate of 10% rate in a given fiscal year where PAN details are available.
- The rate of TDS on Fixed Deposit interest increases to 20% if the PAN details of the investor are not available.
- In the case of Fixed Deposits held in joint names, the TDS on FD is made for the primary account holder. The second holder is not liable for any deductions relating to TDS on FD.
- The TDS on FD deductions happen at the end of each financial year when the interest is credited and not once at the time of the final maturity of the Fixed Deposit.
- Interest earned on Tax Saver FD is also subject to TDS deduction.
- All TDS deductions are reflected in the PAN account of the depositor.
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