Changes in Tax Rules: Fixed Deposit Tax Rules for 2025

Fixed deposits (FDs) are one of the most popular investment options for those seeking safe, consistent, and guaranteed returns. They provide stable interest rates, making them an appealing option for risk-averse investors. FD interest rates normally range between 5% and 8% per year, depending on the duration and financial institution. Investors favour FDs because they provide capital security, regular returns, and ease of investment.

However, with these benefits come tax and reporting duties that must be dealt with for good financial planning. In the Union Budget 2025, major changes were made to Fixed Deposits (FDs), with a special emphasis on Tax Deducted at Source (TDS) thresholds.

TDS Thresholds on Fixed Deposit Interest Revised

Effective April 1, 2025, the TDS thresholds on interest earned from fixed deposits have been increased:

• The threshold for General Citizens (Non-Senior) has been raised from Rs.40,000 to Rs.50,000 per financial year.
• The threshold for Senior Citizens has been increased from Rs.50,000 to Rs.1,00,000 per financial year.

This means that banks will only deduct TDS if their interest income exceeds the stated limits in a financial year.

Requirements of PAN and TDS Rates

TDS Rate: The usual TDS rate on FD interest remains 10% for individuals who have given the bank their Permanent Account Number (PAN).

Non-PAN holders: If a depositor fails to provide their PAN, the TDS rate rises to 20%.

Exemption from TDS: If an individual’s total taxable income is less than the exemption level, they can file Form 15G (for non-senior citizens) or Form 15H (for senior citizens) with their bank to avoid TDS deduction on interest income.

Taxation of Fixed Deposit Interest

FD Interest Taxable: Interest collected from fixed deposits is completely taxable under the heading “Income from Other Sources”.

Tax Slab Rates Applicable: The total interest income will be added to the individual’s taxable income, and tax will be calculated using the appropriate income tax slab rates.

Liability of Advance Tax: If a depositor’s total tax due exceeds ₹10,000 in a financial year, including tax on FD interest, they may be forced to pay advance tax to avoid penalties.

Claim Deduction: Senior citizens who choose the old regime can claim a deduction of Rs.50000 for interest income under Section 80TTB.

Reporting Requirements for Statement of Financial Transactions (SFT)

The Income Tax Act requires some financial institutions to record high-value transactions via the Statement of Financial Transactions (SFT) in order to increase transparency and reduce tax evasion.

• Banks, cooperative banks, and post offices must report individuals’ time deposits totalling Rs.10 lakh or more in a financial year. This comprises cumulative deposits from all of the institution’s branches and accounts.
• Renewals of existing fixed deposits are not considered new deposits and are thus excluded from SFT reporting.

Implications upon Depositors

For Deposits Below Thresholds: Depositors with interest earnings or fixed deposit amounts less than the stipulated thresholds will not be subject to TDS deductions or SFT reporting.

For Deposits that exceed the Thresholds: Those who exceed the thresholds should be aware of the TDS consequences and the potential of their transactions being recorded as SFT. To minimise problems, all interest income should be reported appropriately on income tax returns.

Compliance and Guidelines

Accurate Reporting: Make sure that all interest income from fixed deposits is recorded on your income tax returns, even if TDS has been deducted, to reflect the right tax liability.

Track Aggregate Deposits: Keep track of total deposits across different accounts and branches to avoid potential SFT reporting issues.

Submit Form 15G/15H: If your total income is less than the taxable limit, submit Form 15G (for non-senior citizens) or Form 15H (for senior citizens) to your bank to avoid TDS deductions on interest income.

Conclusion

These changes emphasise the significance of staying updated on tax regulations and ensuring compliance to prevent further issues with tax authorities. Depositors should keep track of their interest income, use tax-saving methods like Form 15G/15H, and schedule for advance tax payments if necessary. Keeping up with these improvements can help taxpayers minimise their tax liability and avoid needless deductions.