Changes in Fixed Deposit (FD) Rules 2025: TDS, Taxation, and SFT Reporting

Revised TDS Rules and Taxation on Fixed Deposits (FDs) – 2025

Increased TDS Thresholds on FD Interest

Effective April 1, 2025, the government has raised the TDS thresholds on interest earned from fixed deposits:

For General Citizens (Non-Senior): Threshold increased from ₹40,000 to ₹50,000 per financial year.
For Senior Citizens: Limit enhanced from ₹50,000 to ₹1,00,000 per financial year.

Banks will now deduct TDS only if the interest income exceeds these revised limits in a financial year.

TDS Rates and PAN Requirements

Standard TDS Rate: 10% if PAN is provided to the bank.
Without PAN: TDS rate increases to 20%.
TDS Exemption: Individuals with income below the taxable limit can submit Form 15G (non-senior citizens) or Form 15H (senior citizens) to avoid TDS deduction.

Taxation of FD Interest

Classified as “Income from Other Sources”: Fully taxable as per individual tax slabs.
Advance Tax Obligation: If total tax liability (including FD interest) exceeds ₹10,000 in a year, advance tax may be required to avoid penalties.
Senior Citizens (Old Tax Regime): Can claim a deduction of ₹50,000 under Section 80TTB on interest income.

Reporting Under the Statement of Financial Transactions (SFT)

To enhance tax compliance, financial institutions must report high-value deposits:

SFT Reporting Threshold: Fixed deposits totaling ₹10 lakh or more across all accounts in a financial year must be reported by banks, cooperative banks, and post offices.
Exclusions: Renewals of existing fixed deposits are not considered fresh deposits and are excluded from SFT reporting.

Implications for Depositors

Below Threshold Deposits: No TDS deductions or SFT reporting.
Above Threshold Deposits: TDS may apply, and high-value deposits could be reported under SFT. Ensure accurate income tax return (ITR) filing to avoid discrepancies.

Compliance and Best Practices

Declare FD Interest: Report all interest income in tax returns, even if TDS is deducted.
Monitor Total Deposits: Keep track of cumulative deposits across banks to assess SFT applicability.
Submit Form 15G/15H: Avoid unnecessary TDS deductions if income is below taxable limits.

Understanding these updated FD regulations is essential for effective tax planning. Depositors should stay informed, ensure compliance, and take necessary steps to minimize tax liability while avoiding reporting issues.