Budget 2025: FD Benefits & Savings Proposals Review

The Union Budget 2025 has been declared and taxpayers, especially the middle-class salaried ones, have gained a little respite in terms of savings and taxation policies. Fixed deposits (FDs) have always been a favorite instrument of risk-averse investors even after taxation issues from the government. Though predictions earlier indicated major tax remodeling for FDs, Budget 2025 contains a few significant alterations that offer some moderate relief to FD owners.

This article discusses the declared changes in FD taxation, amendments to savings incentives, and other applicable financial reforms from the proposed Union Budget 2025-26.

Current Taxation Landscape for Fixed Deposits

Fixed deposits have been one of the favourite long-term savings plans, especially for investors who want to invest—but in something extremely safe and stable. Still, the biggest disadvantage of FDs is how the Indian government takes taxes from FD holders.

• Taxation of FD Interest: The interest earned on FDs is treated as "income from other sources" and is taxed according to the investor's income tax slab.
• TDS on FD interest: Previously, if the interest earned was more than Rs. 40,000 (Rs. 50,000 for senior citizens) in a financial year, banks would deduct tax at source (TDS) at the rate of 10%. If the depositor does not furnish his PAN details, TDS was deducted at a higher rate of 20%.

Usually, such taxes stop people, especially middle-class earners, from putting their money in fixed deposits and lead them towards other vehicles like mutual funds, stocks, and debt funds for better tax-efficient returns.

Revised FD Taxation Policies in Budget 2025

The Union Budget 2025-26 has brought about some incremental wholesome changes in the framework of Fixed Deposit (FD) taxation:

1. TDS Exemption Limit Raised on FD Interest

   As per Budget 2025, the ceiling for tax deduction at source on interest from fixed deposits will be raised from the prevailing Rs. 40,000 to Rs. 50,000 per annum for regular citizens (i.e., not senior citizens).
   • The FD interest-exempt limit for senior citizens is now increased to Rs. 100,000.
   • Such amendment shall become effective April 1, 2025.
   Such a higher TDS threshold helps small investors, thus less taxes deducted at the source and improved liquidity. Even the retirees, who rely on the income from FD interest, will get some respite.

2. No Flat 15% Tax on FD Interest

   One of the most anticipated reforms—a standardized 15% tax on fixed deposit interest—was not enacted in this budget. Fixed deposit interest will still be taxable according to one's income tax bracket.
   The tax regime is the same, and hence, a person with a high income will still need to pay an FD interest tax of up to 30%.

3. No Tax-Free FD Schemes Proposed

   There was a lot of speculation that the government might come out with tax-free FDs or at least higher-interest FD schemes for middle-class investors. But, in Budget 2025-26 no such provision was mentioned.

FD Taxation Changes in Union Budget 2025 vs. Previous Rules

Other Tax Reforms and Savings Benefits for the Middle Class

In addition to fixed deposits, Budget 2025 has provided multiple significant tax benefits pertinent to the middle class and salaried earners:

1. Higher Income Tax Exemptions

   • No income tax for those making up to Rs. 12 lakh annually under the new tax regime.
   • 30% tax rate for salaried individuals with an income exceeding Rs.24 lakh.
   • The time frame to file a tax return has been increased from a two-year period to a four-year one.

2. Increased Tax Exemption on Senior Citizen Interest Income

   The tax exemption on interest income on fixed deposit savings accounts for senior citizens has increased from 50,000 rupees to 1 lakh.

3. No Increase in Section 80C Deduction Limits

   • The deduction limit of Rs 1.5 lakh under Section 80C still exists.
   • An additional deduction of Rs.50,000 under Section 80CCD(1B) is still available for contributions to the NPS.
   The measures are also a part of the government's agenda to secure the future financially for its citizens in a scenario where life expectancy is increasing, and post-retirement planning becomes relevant.

New Investment Vehicles Like Mutual Funds are Growing

FDs have always been the savings vehicle of choice for Indian households; however, mutual funds and stock markets are gaining popularity due to better post-tax returns.

The Budget for 2025-26 has a very balanced view. It is providing some relief to FD investors, but at the same time promoting other financial instruments. The government wants people to invest in other instruments like equity-based mutual funds, derivatives, etc., and at the same time, they want to keep the benefits of old instruments, i.e., the fixed deposits that older people rely on.

Conclusion

In the Union Budget for 2025-26, there is some relief for those who hold FD investments in the form of increased exemption limits from TDS and senior citizens' interest exemptions; still, it is not much. The new flat 15% tax on FD interest that everyone was so eagerly waiting for and the tax-free FD schemes still did not come. Middle-class taxpayers get further relief in income tax exemptions and extended time in filing taxes, but Section 80C caps are not improved.

Therefore, investors still need to spread their risk by investing in various financial instruments such as FDs, mutual funds, and pension plans for improved financial growth.

While planning the financial future ahead, you should diversify to FDs, mutual funds, and pension plans. For this, PNB MetLife offers a variety of tools to reach your financial goals. So, browse our huge range of offerings and grow your money securely!

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