Written By- Jaya Pathak
The Indian government has revamped the taxation norms on fixed deposit interest earnings. It is a significant move which is bringing cheer to the middle-class savers and retirees. The new rules are applicable from the financial year 2015 sixteen in which individual scanned potentially earn interest on fixed deposits to ₹50,00,000 without any tax deduction if planned correctly.
In this blog, we will get to know about the fixed deposit tax reforms and the strategies you can use to make the most of this new provision.
Understanding fixed deposits and their taxation in India
Fixed deposits are the tenured deposit account, which is provided by the financial institutions, providing investors a higher rate of interest than a regular savings account until the given maturity date. One of the popular traditional savings instruments in India known for its guaranteed returns and safety. Fixed deposits are preferred by salaried professionals, investors and senior citizens.
The Interest earned on fixed deposits was fully taxable as income from other sources and banks used to deduct tax deducted at source (TDS) once the interest exceeded a certain threshold.
Old Tax Deducted at Source rules
Tax Deducted at Source amount was deducted if the interest income exceeded 40,000 per year Tax Deducted at Source was applicable above ₹50,000 per year for senior citizens. The tax payers were required to include fixed deposit interests in their gross income and pay tax as per their applicable income tax slab. The deductions under section 80 C offered some sort of relief but the fixed deposit interest was largely taxable. These old rules were practiced till the financial year 2024-25.
The New Rule
The new rule is effective from first April 2025. The Finance Act of 2025 has introduced some significant changes regarding tax relief on fixed deposits and major tax deducted at source. The previous tax deducted at source threshold for general citizens was ₹40,000, whereas for senior citizens it was ₹50,000. But as per the new rule, the new tax deducted at source threshold for general citizens is rupees 50,000 whereas for the senior citizens, this amount is rupees ₹1,00,000.
It means that if your annual interest income is below these limits, then the bank will not deduct any tax deducted at source and you will not be required to pay any tax at all if your total taxable income remains under the exemption limit.
What are the strategies to achieve zero tax liability?
- You can distribute the fixed deposits across family members or spouse whose incomes are below the exemption limit. You can also use joint accounts and assign ownership proportionally.
- You can submit form which can tell your bank that your total income is below the taxable limit. If you will submit the forms such as 15G or 15H then it will prevent tax deduction at source even if your interest is close to the threshold.
- You can use tax free fixed deposits under the section 80C with a five year lock in. You can claim up to rupees 1.5 lakhs rupees deduction on the principal invested. It is to be noted that the interest from tax saving fixed deposits is still taxable, but it can help to reduce your overall tax burden.
- Senior citizens can invest up to ₹30,00,000 in senior citizen savings scheme which offers an interest rate of around 8.2% in the financial year 2025. The interest rate is taxable but the deductions under Section 80TTB can offset it.
- You must opt your tax regime wisely. It is to be noted that new design suits this plan better. But it totally depends upon you to choose whatever regime you want.
- You can take advantage of various deductions such as standard deduction, deductions under section 87A and section 80 TTB.
- You can keep a track on the total annual income on a regular basis.
Who can benefit the most?
- Senior citizens: Senior citizens are eligible for section 80 TTB. They are offered and higher exemption limit for tax deduction at source at the threshold of rupees ₹1,00,000. They can use various forms such as 15H in order to avoid any tax deduction at source. As they have hardly any salary income, so the interest income can remain below the taxable threshold.
- Low income earners: The freelancers or part time workers who have no any major source of income can use fixed deposits in order to in earn an interest under rupees 4.3 lakh rupees and avoid any taxes.
What is the difference between old and new fixed deposits tax rules?
- In the old fixed deposits tax rules, tax deducted at source exemption was made for general citizens at a threshold of rupees 40,000. On the contrary, as per the new rule the TDS exemption for general citizens is at the threshold of ₹50,000.
- As per the old rule, the TDS exemption for senior citizens is rupees 50,000 whereas, as per the new rule, the TDS exemption for senior citizen is rupees ₹1,00,000.
- A standard deduction of rupees ₹50,000 was made as per the old rule. But as per the new rule, the standard deduction is rupees 75,000.
- For senior citizens, section 80TTB offers rupees 50 lakh rupees as per the old rule, whereas in the new rule it is the same.
- As per the old rule, 87A rebate eligibility offers up to 5 lakhs rupees. On the contrary, in the new rule, it is up to 7 lakh rupees.
What are the mistakes you should avoid?
- You must submit your 15G or 15H form on time as banks can deduct tax deducted at source if you are not liable to pay tax.
- Take a thorough analysis on compounding frequency and tenures.
- Do not forget to calculate the total income including the rental, pension and other incomes while evaluating tax slabs.
Conclusion
With prudent planning and understanding on the revised tax regimes, individuals can make most of their fixed deposits investment without worrying about their returns to taxes. The real benefit lies in how you are structuring your investment and tax filings in order to achieve or zero tax on fixed deposit of rupees ₹50,00,000.
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