The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, has proposed to double the TDS (Tax Deducted at Source) threshold for senior citizens earning interest income from bank FDs (fixed deposits) to Rs 1 lakh in a given financial year from FY26. If the annual interest amount crosses Rs 1 lakh in a particular bank, i.e. at the 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.
Investors can effectively manage this by calculating the right investment amount for a given interest rate, ensuring it remains within the annual interest threshold of TDS. In this article, we calculate how much money a senior citizen should invest in bank FDs so that the interest earned remains at or below Rs 1 lakh. If it crosses Rs 1 lakh, then TDS will be deducted, unless Form 15H is submitted. Form 15H prevents TDS from being deducted, provided the annual income of the senior citizen submitting it does not exceed Rs 3 lakh under 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 the three highest interest rate-paying bank FDs across small finance, private, and public sector banks for senior citizens.Table showing cumulative (re-investment) FD interest rate calculation
| Principal Amount | Interest rate (cumulative) | Interest amount (for 1st year) |
| Rs 12,13,110 | 8% (Central Bank of India) | Rs 99,999 |
| Rs 11,32,751 | 8.55% (Bandhan Bank) | Rs 99,999 |
| Rs 10,15,864 | 9.5% (Unity Small Finance Bank) | Rs 99,999 |
In the cumulative interest rate calculator above, TDS will be deducted from the second year onward as the interest will cross Rs 1 lakh with the above-stated principal amount. This is because the interest income from the first year will be added to the principal. Then, on this sum, the interest for the second year will be given. The same theory applies to all the subsequent years, too. 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 12,49,999 | 8% (public sector) | Rs99,999 |
| Rs 11,69,590 | 8.55% (private sector) | Rs99,999 |
| Rs 10,52,630 | 9.5% (small finance bank) | Rs99,999 |
In pay-out type FDs, much 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 the 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 Amount | Interest rate | Interest amount (in one year) |
| Rs 12,13,110 | 8% | Rs 99,999 |
In the cumulative interest method, from the second year onwards, TDS will be deducted due to the addition of the first year’s interest income to the principal amount from the second year onwards. For instance, the principal amount (as per the table above) is Rs 12,13,110 and the interest income is Rs 99,999 for the first year. For the second year, the principal amount will be Rs 12,13,110+Rs99,999= Rs 13,13,109. For this amount, 8% interest will be applicable. So, in the second year, the individual will get an interest income of Rs 1,08,242, which is more than Rs 1 lakh; hence, TDS will be deducted from the second 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 Amount | Interest rate | Interest amount (in one year) |
| Rs 12,49,990 | 8% | 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 Amount | Interest rate | Interest amount (in one year) |
| Rs 11,32,751 | 8.55% | 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 Amount | Interest rate | Interest amount |
| (in one year) | ||
| Rs 11,69,580 | 8.55% | 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 amount | Interest rate | Interest amount (in one year) |
| Rs 10,15,864 | 9.50% | 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 amount | Interest rate | Interest amount |
| (in one year) | ||
| Rs 10,52,620 | 9.50% | 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.
