With the start of the new financial year (FY 2025-26) on April 1, the budget changes announced by Finance Minister Nirmala Sitharaman on February 1, 2025, have officially come into effect.
One significant update is the increase in the TDS exemption on interest income for senior citizens.
This change is aimed at helping elderly individuals earn more from their savings without deductions on smaller interest earnings.
Doubling of TDS Exemption Limit
Senior citizens will now benefit from a higher TDS exemption limit. Previously, interest income up to ₹50,000 was exempt from TDS, but this limit has now doubled to ₹1,00,000.
This means that if senior citizens earn interest from fixed deposits (FDs) or the Senior Citizen Savings Scheme (SCSS), they won’t have to pay TDS on earnings up to ₹1,00,000.
Higher Interest Rates for Senior Citizens
Many elderly individuals prefer FDs as a safe investment option after retirement since they provide guaranteed returns.
To support this, banks offer senior citizens higher interest rates compared to regular depositors.
Typically, banks provide an additional 0.50% interest rate on FDs for senior citizens. Some banks even offer an extra 0.25% for ‘super senior citizens’ aged 80 years or older.
How Families Can Benefit from the New TDS Exemption
The increased TDS exemption limit can be useful for families looking to maximize their savings.
If an FD is opened in the name of an elderly family member, the investor can benefit from both higher interest rates and TDS exemption.
Example of Potential Savings
Suppose you invest ₹3,00,000 in a 3-year FD at a 7% interest rate:
If the FD is in your name, you will earn ₹69,432 in interest. Since the TDS exemption for regular taxpayers is ₹40,000, TDS will be deducted from the remaining amount.
If the same investment is made in the name of a senior citizen, they will receive a 0.50% higher interest rate, earning ₹74,915. Additionally, no TDS will be deducted on this amount.
By making use of this strategy, families can maximize their earnings while benefiting from both the higher interest rate and the increased TDS exemption limit.
