Tax Exemption on Bank Interest: No Tax up to ₹50 Lakh FD

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Key Takeaways

  • Tax-free if income from bank interest is up to ₹4,00,000.
  • No need to file an ITR if annual income is within the exemption limit.
  • To ensure no TDS deduction, submission of Form 15H and Form 15G is required.

Tax Benefit on Bank Interest

As per budget 2025, a person who deposited up to ₹50,00,000 in Fixed Deposits (FD), Recurring Deposits (RD), or other bank deposits will not be required to:

  • Face any TDS deductions
  • File an Income Tax Return, or
  • Pay tax on interest income

Note: This is applicable when there is no other sources of income and it has not crossed the basic exemption limit.

TDS on Fixed Deposits

  • Banks are liable to deduct TDS @ 10% before the payment of interest on FD. If the amount is below threshold limits then no TDS is deducted.
  1. For Senior Citizen – 1,00,000/-
  2. For Individuals below 60 years age – 50,000/-
  • To avoid TDS u/s 194A, senior citizens can submit Form 15H and others can submit Form 15G and before April 1st each year to ensure no TDS is deducted.
  • Total income (including interest) must be below ₹4,00,000.

This new tax benefit provides significant relief for individuals relying on FD/RD interest for income.

No ITR, No Tax on FD Interest

If the total income does not exceed the basic exemption limit, then filling of ITR will be not required.
As per Budget 2025, income tax slab under new tax regime for the FY 2025-26:

Income Tax SlabIncome Tax Rate
0-4 lakhNil
4-8 lakh5%
8-12 lakh10%
12-16 lakh15%
16-20 lakh20%
20- 24 lakh25%
Above 24 lakh30%

Example

Suppose a senior citizen deposits in Bank:
Fixed Deposit : ₹50,00,000
Interest Rate: 7.75% per annum in SBI

Here,

Annual Interest Earned: ₹3,87,500

Since the annual interest income is ₹3,87,500 which is below the ₹4,00,000 exemption limit, no tax is payable or filing ITR is not required.

Note:
Some banks also offer higher interest rates on deposits.
If the interest earned exceeds the basic exemption limit for senior citizens, the excess amount becomes taxable as per the applicable slab rates.

Strategies for Fixed Deposit Reporting in Income Tax

As per SFT reporting provision of Income Tax. It is recommended to deposit up to Rs. 10 lakh in a Financial Year in a bank.

Reporting FD more than ₹10 Lakh

  • Banks were required to report FD transactions to the IT Department when it exceeds ₹10 lakh in a financial year.
  • This information reflects in the Annual Information Statement (AIS) of the taxpayer.
  • The taxpayer must disclose the source of income in the Income Tax Return (ITR).

Splitting FD Across Multiple Banks

  • If you want to deposit ₹10 lakh, you can split it into two banks, ₹5 lakh each.
  • This way, no single bank reports the transaction to the IT Department.

Deposit Insurance Coverage

  • The Deposit Insurance and Credit Guarantee Corporation (DICGC) provides insurance cover of ₹5 lakh per bank.
  • If you deposit up to ₹5 lakh in multiple banks, your money remains secured in case of bank failure.

To avoid unnecessary tax scrutiny, ensure that large FD deposits are reported correctly in your ITR with a valid income source.

Always plan your investments wisely to maintain compliance and financial safety.

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