Introduction
Headlines claiming no income tax on bank FD have gone viral, promising massive relief for millions of depositors who rely on fixed deposit interest for steady income. While the Union Budget 2025 brought welcome changes to TDS rules on FD interest—raising thresholds significantly—the reality is more nuanced. Interest from bank fixed deposits remains fully taxable under “Income from Other Sources” as per your slab rate. However, the hiked TDS exemption limits mean no tax deduction at source for interest up to Rs 50,000 (non-seniors) or Rs 1 lakh (seniors), benefiting lakhs of small savers and retirees by improving cash flow and reducing compliance hassle. This update clarifies the facts, rules, and who truly gains from these income tax on FD changes.
Key Updates on Income Tax on Bank FD Interest
The Budget 2025 focused on easing TDS burdens rather than eliminating tax on FD interest entirely:
- TDS Threshold Hiked: No TDS if annual FD interest ≤ Rs 50,000 (up from Rs 40,000) for individuals; ≤ Rs 1 lakh (up from Rs 50,000) for senior citizens.
- TDS Rate: 10% if interest exceeds threshold and PAN provided; 20% without PAN.
- Taxability Unchanged: FD interest is added to total income and taxed at slab rates (0-30% plus cess).
- Effective From: April 1, 2025 (FY 2025-26).
These adjustments aim to encourage savings, especially among seniors dependent on interest income, without altering core taxation.
How TDS Works on Fixed Deposit Interest Now
Banks deduct TDS when crediting/paying interest if it crosses limits:
- Non-Seniors: No TDS below Rs 50,000; 10% above.
- Seniors: No TDS below Rs 1 lakh; 10% above.
- Aggregate across all FDs in one bank; separate for each bank.
- Submit Form 15G (non-seniors) or 15H (seniors) if total income below exemption limit to avoid TDS entirely.
Example: Rs 60,000 interest (non-senior) → Rs 6,000 TDS deducted, claim credit/refund in ITR.
Who Benefits Most from These Changes
- Senior Citizens: Doubled threshold to Rs 1 lakh means many retirees face zero TDS, retaining full interest monthly/quarterly.
- Small Investors: Those earning modest interest (e.g., on Rs 10-15 lakh deposits at 7%) avoid automatic deductions.
- Low-Income Groups: If total income (including FD interest) below basic exemption (Rs 4 lakh new regime), get TDS refund via ITR.
- Lakhs of middle-class savers gain better liquidity, though high earners still pay slab-rate tax.
Ways to Minimize Tax on FD Interest
- Spread deposits across banks to stay under per-bank thresholds.
- Opt for tax-saving FDs (5-year lock-in) for Section 80C deduction up to Rs 1.5 lakh (principal only).
- Seniors claim extra Rs 50,000 deduction under Section 80TTB (old regime).
- Choose cumulative FDs if in lower slab later.
Conclusion
The claim of “no income tax on bank FD” is misleading—interest remains taxable per slab—but the 2025 TDS threshold hikes deliver real relief, ensuring no upfront deduction for interest up to Rs 50,000/Rs 1 lakh. This benefits lakhs of people, particularly seniors and conservative savers, by boosting take-home interest and simplifying finances. Review your FDs, update PAN/Form 15G-H, and file ITR accurately to maximize gains. Consult a tax advisor for personalized planning in this evolving landscape.
FAQs:
Is there really no income tax on bank FD interest now?
No, FD interest is still taxable at your slab rate. The change is higher TDS thresholds—no deduction if interest ≤ Rs 50,000 (non-seniors) or ≤ Rs 1 lakh (seniors).
How much FD interest is TDS-free in FY 2025-26?
Up to Rs 50,000 for regular citizens and Rs 1 lakh for senior citizens per financial year—no TDS deducted by banks below these limits.
Can I avoid TDS even if interest exceeds the limit?
Yes, submit Form 15G (non-seniors) or 15H (seniors) if your total income is below the taxable limit; banks won’t deduct TDS then.
Do seniors get extra tax benefits on FD interest?
Yes, Section 80TTB allows up to Rs 50,000 deduction on interest income (old regime), plus the new Rs 1 lakh TDS exemption threshold.