In a significant move to benefit fixed deposit holders, the Budget 2025 has proposed raising the Tax Deduction at Source (TDS) threshold on interest earned from bank fixed deposits from Rs 40,000 to Rs 50,000 per financial year for non-senior citizens. This amendment is scheduled to take effect from 1 April 2025.

 

The revised TDS framework encompasses multiple financial institutions. Banking companies regulated under the Banking Regulation Act, cooperative societies engaged in banking, post office schemes notified by the Central Government, and specific cooperative societies will all implement the new Rs50,000 threshold. For other cases, the TDS threshold has been doubled from Rs 5,000 to Rs10,000.
 

Under current regulations, banks deduct TDS at 10% when interest payments exceed the specified threshold if the account holder's PAN is available. This rate increases to 20% in cases where PAN details are not provided. For joint fixed deposits, TDS applies only to the primary account holder.

 

The TDS mechanism follows specific guidelines established by the Income Tax Department. Deductions occur at the end of each financial year when interest is credited, rather than at the fixed deposit's maturity. These deductions apply to all types of fixed deposits, including Tax Saver FDs, and are reflected in the depositor's PAN account.

 

This TDS threshold increase aligns with the broader tax reforms introduced in Budget 2025, which includes a new tax regime offering zero tax up to Rs 12 lakh and simplified tax slabs, demonstrating the government's commitment to reducing the tax burden on middle-class investors and simplifying the tax structure.