Big Relief for Fixed Deposit Investors: Tax-Free Limit on FD Interest Hiked

May 01, 2025

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The Union Budget 2025 has brought in significant changes to the Tax Deducted at Source (TDS) rules, offering much-needed financial relief to taxpayers across various categories. Effective from April 1, 2025, these amendments aim to ease the tax burden on senior citizens, investors, insurance agents, and those earning from interest income. Let’s dive deep into these updates and understand how they impact different sections of taxpayers.

 

Relief for Senior Citizens: Higher TDS Threshold on FD Interest Income

Senior citizens have received a significant benefit with the doubling of the TDS exemption limit on Fixed Deposit interest income. Earlier, banks deducted TDS if the total interest income exceeded ₹50,000 in a financial year. With the new rule, TDS will now be deducted only if the interest income crosses ₹1 lakh.

 

What does this mean?

  • If a senior citizen earns up to ₹1 lakh in interest from Fixed Deposits (FDs), Recurring Deposits (RDs), or savings instruments, there will be no TDS deduction.
  • This increase will help maximise earnings, especially for retirees who rely on interest income for their daily expenses.

 

General Citizens Get a Breather: TDS Limit Raised on Interest Income

For regular taxpayers, the Fixed Deposit TDS threshold on interest income has been raised from ₹40,000 to ₹50,000.

 

Key Takeaways:

  • If total interest earnings from bank deposits remain within ₹50,000, no TDS will be deducted.
  • Beneficial for individuals who depend on FDs as a source of passive income.
  • A modest but effective step toward encouraging more people to invest in bank deposits.

 

Lottery Winnings: A More Practical Approach

Previously, if total lottery winnings exceeded ₹10,000 in a financial year, TDS was deducted, even if the amount was won in small installments. Under the new rule, TDS will now be deducted only if a single transaction exceeds Rs 10,000.

 

What’s in it for you?

  • If you win multiple small amounts throughout the year, but each transaction is below ₹10,000, no TDS will be deducted.
  • A great relief for individuals who participate in lottery schemes or gaming contests

 

Insurance Agents and Brokers: Increased TDS Threshold on Commissions

Insurance agents and brokers will now benefit from an increased TDS exemption limit. The previous threshold of ₹15,000 has now been raised to ₹20,000.

Implications:

  • Agents earning up to ₹20,000 in commission will not face any TDS deduction.
  • Encourages more individuals to take up insurance advisory as a profession.
  • Provides a cushion for small-scale insurance agents.

 

Mutual Funds and Stock Investors: More Take-Home Dividends

The TDS exemption limit on dividend income from mutual funds and stocks has been increased from ₹5,000 to ₹10,000.

 

Why is this important?

  • Investors will get to retain more of their dividend earnings without worrying about TDS deductions.
  • Encourages more retail investors to participate in the equity and mutual fund markets.
  • Helps in the overall growth of the investment ecosystem in India.

Final Thoughts

The Union Budget 2025 has taken a progressive step toward reducing the tax burden on various categories of taxpayers. By raising the tax-free limits on TDS, the government has ensured that more money remains in the hands of depositors, investors, and professionals. These changes are expected to boost savings, encourage investments, and provide financial relief to senior citizens and middle-income groups.

 

If you fall into any of these categories, it's time to reassess your financial strategy and take full advantage of these tax-free benefits.

 

Looking to grow your savings faster? Ujjivan SFB offers a wide range of fixed deposit products. Select the FD of your choice and take a step forward to your financial goals. Alternatively, you can browse through Ujjivan SFB product suite - our wide range of financial products are designed to make your financial life better.

 

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FAQs

1. What is the new TDS limit for senior citizens on interest income?

The TDS threshold for senior citizens has been increased from ₹50,000 to ₹1 lakh per year.

2. How does the new TDS rule benefit general citizens?

The exemption limit for TDS on interest income has been increased from ₹40,000 to ₹50,000, reducing the tax burden on small depositors.

3. Will banks automatically stop deducting TDS if I stay within the new limit?

Yes, banks will not deduct TDS if your interest earnings stay within the new threshold. However, it is advisable to submit Form 15G or 15H (for senior citizens) to ensure no deductions.

4. What happens if I win multiple small lottery amounts under ₹10,000?

If no single lottery win crosses ₹10,000, no TDS will be deducted, even if your total winnings exceed ₹10,000.

5. Has there been any change in the TDS limit for insurance commissions?

Yes, the TDS threshold for insurance agents has been increased from ₹15,000 to ₹20,000.

6. What is the new TDS exemption limit on mutual fund and stock dividends?

The exemption limit has been raised from ₹5,000 to ₹10,000, allowing investors to retain more of their dividend income.

7. Will these new TDS limits apply to both banks and NBFCs?

Yes, the updated TDS thresholds apply to interest income from both banks and NBFCs.

8. How can I avoid TDS deductions if my income is below the threshold?

You can submit Form 15G (for general citizens) or Form 15H (for senior citizens) to your bank or financial institution.

9. Are there any changes in TDS for freelancers or gig workers?

No, these updates are specifically for interest income, lottery winnings, commissions, and dividends.

10. What should investors do to maximize their benefits under the new rules?

Investors should review their FD and MF investments, ensure proper documentation, and explore tax-saving strategies to take full advantage of the revised limits.

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