Union Budget 2026: After Budget 2025 tax relief, what can senior citizens expect from FM Sitharaman this year?

Budget 2026: The Union Budget 2025 delivered a significant boost to senior citizens and pensioners, reshaping the way retirement income is taxed and improving cash flows for millions who depend on fixed deposits and rental income. With a mix of higher exemptions, simpler compliance and targeted relief, the government has positioned the latest tax changes as a major step towards strengthening financial security in old age.

Higher TDS threshold

One of the most impactful moves has been the decision to raise the threshold for Tax Deducted at Source (TDS) on interest income for senior citizens. From FY 2025–26, banks will deduct TDS on fixed deposit interest only if annual earnings exceed ₹1 lakh, up from the earlier limit of ₹50,000. For retirees who rely heavily on interest income, this translates into more money in hand throughout the year and fewer hassles at tax time. Many seniors who fall below this threshold may no longer face routine deductions or the need to seek refunds, easing both liquidity pressures and compliance burdens.

New tax regime for seniors

The government has paired this change with a broader reform of the income tax structure under the new tax regime. By raising the basic exemption limit to Rs 12 lakh, the Budget aims to spur consumption and savings while giving households — especially retirees with modest incomes — greater breathing room. For senior citizens, this means a larger share of their income can now remain untaxed, reinforcing the role of tax policy as a tool for social security.

Rental income relief

Relief has also come on the rental income front. The annual threshold for TDS on rent has been raised sharply from ₹2.40 lakh to ₹6 lakh. Earlier, tenants were required to deduct tax at source once rent crossed the lower limit, often complicating matters for landlords with relatively small rental incomes. The new rule reduces the number of transactions subject to TDS, improving cash flows for senior citizens who depend on rent to meet daily expenses and medical needs. At the same time, tenants benefit from simpler compliance and less paperwork.

Fixed deposits for seniors

The combined effect of these changes is already influencing investment behaviour. Fixed deposits, a traditional favourite among retirees, have become even more attractive. For instance, a senior citizen investing Rs 3 lakh in an FD at 7.5% could earn close to Rs 75,000 a year without any TDS deduction, provided total interest income remains within the new Rs 1 lakh limit. This not only boosts effective returns but also makes it easier to plan monthly expenses without waiting for tax refunds.

Tax slabs recalibrated for seniors

Tax slabs under the new regime have also been realigned, with higher income thresholds for nil and lower tax rates, further easing the burden on senior and super senior citizens. Together, these measures mark a clear shift in policy focus — from merely taxing income to actively supporting financial stability in retirement.

Senior citizen tax slabs for FY 2025-26 (AY 2026-27) under New Tax Regime as per Budget 2025

Income range (Rs)    Tax rate
0 - 4 lakh    Nil
4 - 8 lakh    5%
8 - 12 lakh    10%
12 - 16 lakh    15%
16 - 20 lakh    20%
20 - 24 lakh    25%
Above 24 lakh    30%

Senior citizen tax slabs for FY 2025-26 (AY 2026-27) under Old Tax Regime as per Budget 2025

Tax slabs    Tax rate
Up to Rs 3,00,000    Nil
Rs 3,00,001- Rs 5,00,000    5%
Rs 5,00,001 to Rs 10,00,000    20%
Above Rs 10,00,00    30%

Eyes on Budget 2026

With the Union Budget 2026 around the corner, senior citizens are once again looking for higher tax exemptions and a possible revision in interest rates on key savings schemes.

Under the old tax regime, the basic exemption limit for senior citizens currently stands at ₹3 lakh a year, while super senior citizens aged 80 and above enjoy a higher threshold of ₹5 lakh. These benefits, however, are restricted to the old regime. In contrast, the new tax regime raised the basic exemption limit to ₹4 lakh, but expectations are building that the upcoming Budget may introduce changes to the old tax regime, which has remained largely unchanged for the past two years.

In the Union Budget 2024, Finance Minister Nirmala Sitharaman eased tax compliance for senior citizens aged 75 and above. Under the revised rules, individuals who earn income solely from pensions and interest are exempt from filing income tax returns, provided they meet certain conditions.

Financial planners had earlier recommended lowering this age threshold to 70 in the Union Budget 2025 to extend the benefit to a wider group of retirees. The proposal continues to find support as Budget 2026 approaches.

There is also growing speculation that the government could enhance tax exemptions on interest income from senior citizens’ savings schemes (SCSS) and post-office savings accounts. For retirees who rely heavily on these instruments for their daily expenses, additional tax relief would offer meaningful financial support and strengthen income security in their post-retirement years.