With the beginning of the new financial year (FY2025-26) on April 1, the budget announcements made by Finance Minister Nirmala Sitharaman on February 1, 2025, have taken effect.
Among the various provisions, one key change is the increase in the TDS exemption on interest income for senior citizens.
This new benefit is designed to help elderly citizens gain more from their savings without facing tax deductions on smaller interest earnings.
Doubling of TDS Deduction Limit
As of today, senior citizens will enjoy an increased TDS deduction limit. Previously, the TDS exemption applied to interest income up to Rs 50,000. Now, that limit has been raised to Rs 1,00,000.
This means that if elderly individuals earn interest from fixed deposits (FDs) or the Senior Citizen Savings Scheme (SCSS), they will not face any TDS deduction on income up to Rs 1,00,000.
Banks Offering Higher Interest Rates
Many senior citizens prefer fixed deposits (FDs) as a safe investment option post-retirement, as they offer guaranteed returns.
Banks understand this preference and reward senior citizens with higher interest rates compared to regular depositors.
Typically, banks offer a 0.50% higher interest rate on FDs for senior citizens. Additionally, some banks offer an extra 0.25% interest rate for ‘super senior citizens’ who are 80 years or older.
How You Can Benefit by Making an FD in the Name of an Elderly Person
The new TDS exemption limit for senior citizens offers double the benefit for families. If you invest in an FD under the name of an elderly person in your family, you will not only benefit from the higher interest rates but also from the TDS exemption on the interest income.
Example of the Benefit
Let’s say you invest Rs 3,00,000 in a 3-year FD with an interest rate of 7%. If the FD is in your name, you will earn Rs 69,432 in interest.
Since the TDS exemption limit for regular taxpayers is Rs 40,000, TDS will be deducted on the remaining interest.
However, if you make the same investment in the name of an elderly family member, they will receive a 0.50% higher interest rate, earning Rs 74,915.
Moreover, there will be no TDS deduction on this interest. This strategy allows you to maximize your earnings while taking advantage of both the higher interest rate and the TDS exemption.
