Starting April 1, 2025, the government will raise the Tax Deducted at Source (TDS) threshold on fixed deposit (FD) interest for senior citizens to Rs 1 lakh per year. This change aims to simplify things for banks and reduce the burden on senior citizens. However, it doesn’t mean seniors are exempt from tax on interest income above this limit.
Senior citizens must report their interest income accurately in their tax returns. If they earn more than Rs 1 lakh in interest in a financial year, they will pay TDS on the excess amount. This means the first Rs 1 lakh of interest is free from TDS, but any interest above this limit is taxed based on the individual’s applicable slab rate.
To manage this, senior citizens should submit Form 15H to their bank if they expect their total income to be below the taxable limit. This ensures that the bank does not deduct TDS. However, if their income exceeds the taxable threshold, they must pay advance tax on the excess amount to avoid penalties. Managing TDS and tax liabilities properly helps senior citizens maximize their FD earnings and avoid potential issues during tax assessments.
