To avoid new TDS on interest above Rs 1 lakh how much senior citizens should invest in bank FD
Budget 2025 has proposed to double the TDS threshold for senior citizens earning interest income from bank FDs to Rs 1 lakh in a given financial year from FY 2026. If the annual interest amount crosses Rs 1 lakh in a particular bank i.e. aggregate level in a bank. This means if a senior citizen can keep his/her interest income limited to up to Rs 1 lakh then no TDS will be deducted by the bank.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
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This can very well be managed by investors if they calculate the right investment amount for a given interest rate to ensure it does not exceed the annual interest threshold of TDS. In this article we calculate how much money a senior citizen should invest in bank FD so that the interest component stays Rs 1 lakh or below. If it crosses Rs 1 lakh then TDS will be deducted, provided Form 15H is not submitted. Form 15H prevents TDS from being deducted provided the annual income of the senior citizen submitting it does not exceed Rs 3 lakh in the old tax regime.
How much money to invest in bank FD so that the interest does not attract TDS
For the calculations below we have taken two factors- interest payment is either cumulative or quarterly payout. The calculations below also show three highest interest paying bank FD rates across small finance, private and public sector banks for senior citizens.Table showing cumulative (re-investment) FD interest rate calculation
Principal AmountInterest rate (cumulative)Interest amount (for 1st year)Rs 12,13,1108% (Central Bank of India)Rs 99,999Rs 11,32,7518.55% (Bandhan Bank)Rs 99,999Rs 10,15,8649.5% (Unity Small Finance Bank)Rs 99,999
In the cumulative interest rate calculator as above, TDS will be deducted from the 2nd year onwards as the interest will cross Rs 1 lakh with the above stated principal amount. This is because 1st year’s interest will be added to the principal and then on this sum the interest for 2nd year is given. The same theory applies to all the subsequent years also.
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This means if you wish to avoid TDS for many years then each year you will have to ensure that your total FD amount is reduced below these limits for a given interest rate.
Table showing quarterly interest pay out FD calculator
Principal Amount (quarterly pay-out)Interest rate Interest amount (for one year)
Rs 12,49,9998% (public sector)Rs99,999Rs 11,69,5908.55% (private sector)Rs99,999Rs 10,52,6309.5% (small finance bank)Rs99,999
In pay-out type FD like shown in the above table, no TDS will be deducted as the principal and interest amount will remain the same throughout the tenure of the FD till the time interest rate remains unchanged.
All calculations made using Bankbazaar FD rate calculator as of February 6, 2025.
Chartered Accoutant Ashish Karundia says, "Starting April 1, 2025, banks, co-operative societies, post offices, and similar financial institutions will only deduct TDS if the interest paid or credited to a senior citizen (individual aged 60 and above) exceeds Rs 1 lakh in a financial year, up from the previous threshold of Rs 50,000. As a result, these institutions must update their software systems to automatically apply the new TDS limit and accurately identify eligible senior citizens. Financial institutions must ensure their systems account for individuals reaching 60 within the year to give advantage of the higher threshold."
Public Sector Bank highest FD rate for senior citizens
According to data from paisabazaar.com Central Bank of India offers 8% interest, which is the highest FD rate for senior citizens across all public sector banks as of February 5, 2025. The tenure for this FD is 1111 days.Cumulative (Interest re-investment) FD calculator
In this table below Central Bank of India is offering 8% interest rate for 1111 days tenure (3 years 16 days). We have taken the interest earned for one year as this is what is going to be factored in for calculating the threshold for deducting TDS.Table 1: Cumulative (Re-investment)
Principal AmountInterest rateInterest amount (in one year)Rs 12,13,1108%Rs 99,999
In the cumulative interest method, from the 2nd year onwards, TDS will be deducted due to addition of the 1st year’s interest to the principal amount from 2nd year onwards. For example: In the example the principal amount is Rs 12,13,110 and the interest is Rs 99,999 for the first year. For the 2nd year the principal amount will be Rs 12,13,110+99,999= Rs 13,13,109. On this amount 8% interest will be applicable so the 2nd year interest amount comes to Rs Rs 1,08,242 which is more than Rs 1 lakh hence TDS will be deducted from the 2nd year onwards in this cumulative interest type FD.
You can calculate an FD amount in such a way that the total interest amount for the final year remains below or up to Rs 1 lakh and it will help you avoid TDS.
Table 2: Quarterly interest payout
Principal AmountInterest rateInterest amount (in one year)Rs 12,49,9908%Rs 99,999
In table 2’s principal amount, no TDS will be ever deducted as its quarterly payout, so the principal component remains the same throughout the tenure.
Private Sector Bank highest interest rate for senior citizens
As per data from paisabazaar.com, Bandhan bank offers the highest interest rate of 8.55% for senior citizens. The tenure for this FD is 1 year.Table 3: Cumulative (Re-investment)
Principal AmountInterest rateInterest amount (in one year)Rs 11,32,7518.55%Rs 99,999
In table 3 the interest amount is Rs 99,999 for the first year so TDS is not deducted. But for subsequent years, TDS will be deducted as its cumulative interest type FD.
Table 4: Quarterly pay-out
Principal AmountInterest rateInterest amount (in one year)Rs 11,69,5808.55%Rs 99,999
Small Finance Bank highest interest rate for senior citizens
As per data from paisabazaar.com, Unity Small Finance Bank offers the highest interest rate of 9.5% on FDs for senior citizens. The tenure of this FD is 1001 days (2 years 9 months 1 day)Table 5: Cumulative (Re-investment)
Principal amountInterest rateInterest amount (in one year)Rs 10,15,8649.50%Rs 99,999
In table 5 the interest amount is Rs 99,999 for the first year so TDS is not deducted. But for subsequent years, TDS will be deducted as its cumulative interest type FD.
Table 6: Quarterly interest pay-out
Principal amountInterest rateInterest amount (in one year)Rs 10,52,6209.50%Rs 99,999
Some important things to know
Karundia explains:The increase in the TDS threshold does not mean interest income up to Rs 1 lakh is tax-free. It simply means TDS will only be deducted if the interest exceeds Rs 1 lakh. Suppose a senior citizen’s total income surpasses the basic exemption limit. In that case, they will still be liable to pay tax on the interest earned, unless they choose the new tax regime, where income up to Rs 12 lakh will not attract any income tax due to Section 87A tax rebate.The interest income and corresponding TDS (if deducted) can be viewed on the AIS (or TIS/26AS) available on the Income Tax e-portal. #sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
This story originally appeared on: India Times - Author:Faqs of Insurances
