The tax deduction at source (TDS) rule is applicable when the interest earned on fixed deposits surpasses a specific threshold within a financial year. 
Special 
The tax deduction at source (TDS) rule is applicable when the interest earned on fixed deposits surpasses a specific threshold within a financial year. Union Budget 2025: The tax rates and slabs for individuals, including senior citizens, were revised in the Union Budget 2025. Several significant changes were introduced for senior citizens in the Budget, such as doubling the TDS threshold and tax deduction limit on interest income to Rs 1 lakh, and exempting withdrawals from old National Savings Scheme accounts after August 29, 2024. The enhanced TDS thresholds on senior citizen deposits will come into effect from the Financial Year 2025-26, starting from April 1, 2025. Tax experts have noted that these increased TDS thresholds will make bank and post office deposits more appealing to senior citizens.
During the announcement of the Union Budget for the fiscal year 2025-26, Finance Minister Nirmala Sitharaman announced that the tax deduction limit on interest for senior citizens will be increased from Rs 50,000 to Rs 1 lakh.
How much tax do I have to pay? Calculate now
TDS for seniors and non-seniors
The tax deduction at source (TDS) rule is applicable when the interest earned on fixed deposits surpasses a specific threshold within a financial year. This threshold varies for senior and non-senior citizens. Banks will deduct TDS at a flat rate of 10% if the Permanent Account Number (PAN) details are provided; this rate increases to 20% if PAN details are not furnished.
In cases of joint fixed deposits, TDS is deducted under the primary account holder's name. TDS deductions are made at the end of each financial year when interest is credited, not at the fixed deposit maturity. Even interest earned on tax-saver fixed deposits is subject to TDS deduction, with all deductions being reflected in the depositor's PAN account.
The proposed changes in Budget 2025 aim to lighten the tax burden on fixed deposit holders, specifically retirees, enabling them to retain a larger portion of their interest income.
As per the Budget 2025 proposal, TDS on interest from deposits by senior citizens will not be deducted if the annual interest income is below Rs 1 lakh.
TDS rates for senior citizens
Payer Current TDS threshold (FY 2024-25) Proposed TDS threshold (FY 2025-26)
Banks Rs 50,000 Rs 1,00,000
Post Office
Deposits Rs 50,000 Rs 1,00,000
Co-operative Banks Rs 50,000 Rs 1,00,000
"This would avoid blockage of funds in the form of interest income for senior citizens who generally prefer to save their money in fixed deposits. This would definitely make FDs more attractive for senior citizens and thereby would avoid the hassle of filing returns for senior citizens (having only income from FD interest up to Rs 1 lakh) to claim tax refunds on account of TDS on interest income," says CA Dr Suresh Surana.
“The interest is added to your total income and taxed according to your income tax slab. Banks deduct 10% TDS if the interest exceeds Rs 50,000 for senior citizens (Rs 40,000 for others). This rate rises to 20% if the PAN is not provided,” said Adhil Shetty, CEO of Bankbazaar.com.
He added, “The increased tax deduction limit will apply to fixed deposits and sovereign bond earnings, ensuring that senior citizens retain more of their interest income. This move enhances returns on savings, offering greater financial security and stability for retirees. It also improves tax efficiency, reduces compliance burdens, and puts more money in the hands of senior citizens.”
Tax consultant Roopendra Sharma said: “Till now, senior citizens got relief from TDS deduction till Rs 50,000 on interest received from banks and financial institutions. Now it has been increased up to Rs 1 lakh on interest income, which means that for that much higher amount, they will no longer have to approach banks for TDS certificate and then claim a refund from IT department.”
National Savings Scheme
The finance minister has announced a proposal to provide relief to individuals, particularly senior citizens, with long-standing National Savings Scheme (NSS) accounts. Since interest will no longer be paid on these accounts starting from September 1, 2024, individuals making withdrawals from their NSS accounts on or after August 29, 2024, will be exempt from taxes. These will be applicable on accounts under NSS-87 and NSS-92.
Finance Minister Sitharaman highlighted the issue faced by senior citizens with old National Savings Scheme accounts that no longer earn interest. As a solution, individuals will be allowed to make penalty-free withdrawals from their NSS accounts starting October 1, 2024, despite earning 0% interest. It's important to clarify that this exemption only applies to NSS-87 and NSS-92 accounts, while the National Savings Certificate (NSC) scheme remains unaffected.
"A number of senior and very senior citizens have very old National Savings Scheme accounts. As interest is no longer payable on such accounts, I propose to exempt withdrawals made from NSS by individuals on or after August 29, 2024," FM Sitharaman said.
Total Relief for senior citizens
The increased standard deduction limit of Rs 75,000 in the new tax regime has provided benefits to pensioners and senior citizens. Additionally, taxpayers above the age of 60 years have also seen advantages from the revised tax slabs introduced in the previous Budget. Under the old tax regime, pensioners had a standard deduction of only Rs 50,000, while family pensioners had a limit of Rs 15,000.
“Depending on the individual tax slab, senior citizens can enjoy a relief of up to Rs 15,000 after this TDS limit enhancement. Lesser tax burden will leave more cash in the hands of senior citizens,” said TaxSpanner CEO Sudhir Kaushik.
Furthermore, the finance minister announced a simplified tax filing process under Section 194P last year for senior citizens aged 75 years and above. Senior citizens who receive income solely from pensions and interest on savings are now exempt from filing income tax returns. This initiative eliminates the need for additional filing, with specified banks being proposed to manage tax deductions for these individuals.
New Tax Regime
Senior citizen tax slabs for FY 2025-26 (AY 2026-27) under new tax regime as per Budget 2025
Income range (₹) 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%
Old Tax Regime
Senior citizen tax slabs for FY 2025-26 (AY 2026-27) under the old tax regime as per Budget 2025
Tax slabs Tax rate
Up to 3 lakh Nil
3- 5 lakh 5%
5-10 lakh 20%
Rs 10 lakh+ 30%
Copyright©2025 Living Media India Limited. For reprint rights: Syndications Today
