In the Union Budget 2025, Finance Minister Nirmala Sitharaman announced a significant change benefiting senior citizens: the threshold for Tax Deducted at Source (TDS) on interest income has been doubled from ₹50,000 to ₹1 lakh.
Understanding TDS on Interest Income
TDS is a mechanism where tax is deducted at the point of income generation. For interest earned from fixed deposits and other savings instruments, banks and financial institutions deduct TDS if the interest exceeds a specified limit within a financial year. Prior to this budget, the TDS threshold for senior citizens was ₹50,000. Any interest income above this amount would attract a 10% TDS deduction, provided the Permanent Account Number (PAN) was furnished; otherwise, the rate was 20%.
Implications of the Increased TDS Threshold
The increase in the TDS threshold to ₹1 lakh means that senior citizens can now earn up to ₹1 lakh in interest income without any TDS deduction. This change offers several advantages:
- Enhanced Cash Flow: With a higher threshold, senior citizens will have more disposable income throughout the year, as less tax is deducted upfront.
- Reduced Refund Dependency: Previously, if TDS was deducted and the individual’s total taxable income was below the exemption limit, they would need to file for a refund. The increased threshold reduces the likelihood of this scenario, simplifying financial management for seniors.
- Simplified Tax Compliance: A higher TDS limit reduces the frequency of tax deductions, leading to fewer transactions to track and potentially simplifying the tax filing process.
Will This Reduce Tax Liability?
While the increase in the TDS threshold offers immediate cash flow benefits, it does not reduce the overall tax liability of senior citizens. TDS is only a mechanism for collecting tax in advance; the actual tax liability depends on the total taxable income and applicable tax rates.
- If a senior citizen’s total income, including interest income, is below the taxable limit (₹3 lakh for individuals aged 60-80 and ₹5 lakh for those above 80 as per current tax slabs), they will not owe any tax, and the new threshold helps avoid unnecessary TDS deductions and refund claims.
- If the total income exceeds the taxable limit, tax will still be payable as per the slab rates, even if no TDS was deducted on interest income.
Thus, while this change improves liquidity and ease of tax filing, it does not provide a direct reduction in tax liability unless the total taxable income remains below the exemption limit.
Expert Opinions
Tax professionals have lauded this move. Sandeep Sehgal, partner-tax at AKM Global, stated, “The increase in the limit for TDS on interest to ₹1 lakh will ensure greater cash flow in the hands of senior citizens, providing them with greater financial cushion.”
Manoj Purohit, partner at BDO India, added, “Increasing the withholding tax will leave a larger disposable income in their hands, rather than them having to wait for the refund of taxes paid.”
Conclusion
The doubling of the TDS threshold on interest income for senior citizens is a welcome change, offering increased financial flexibility and reducing administrative burdens. However, it does not directly impact tax liability, which still depends on total taxable income and applicable slab rates. Senior citizens should review their investment portfolios and consult with financial advisors to understand how this change impacts their tax planning and overall financial strategy.
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Shall we have to submit the 15h even when the interest income is below one lakh?
No. The TDS would be deducted only after crossing the threshold if such 15H form is not submitted.
Thank you for the post. Kindly change the title to be increase in TDS “exemption”, otherwise it gives the opposite message. Thank you.
Hi Charudhattan, Thanks for highlighting this. I have already updated it after publishing the article, but looks like the cache is not cleared. I have cleared it now.