Budget 2025: What it means for senior citizens, how their tax slabs have changed?

Budget 2025 impact: This year, Finance Minister Nirmala Sitharaman introduced a budget that is favourable for taxpayers, especially those in the middle-class bracket. Changes were made to increase the income tax exemption limit to Rs 12 lakh in the new tax regime, aiming to stimulate household consumption and savings. Additionally, enhancements were made for senior citizens to reduce their tax obligations.

Furthermore, measures were announced to simplify TDS compliance requirements. For senior citizens investing in fixed deposits, the threshold for TDS on interest income exceeding Rs 50,000 was raised to Rs 1 lakh starting from FY 2025-26. This adjustment provides significant relief to elderly individuals who rely on fixed deposit schemes for guaranteed returns.

In the 2025 budget, the annual TDS limit on rent was increased from Rs 2.40 lakh to Rs 6 lakh per year, resulting in a significant reduction in TDS transactions for individuals with lower rental income. Previously, tenants had to deduct TDS at a rate of 10 per cent before paying rent to their landlords. This change is particularly beneficial for senior citizens who rely on rental income during retirement, as it will improve their cashflows.

Key points

1. The TDS threshold was doubled for senior citizens in the Budget and tax deduction limit on interest income to Rs 1 lakh from Rs 50,000. 

As per the Income Tax Department’s website, the TDS system was implemented in order to collect taxes directly from the source of income. Under this system, a person (known as the deductor) who is required to make a payment of a specified nature to another person (known as the deductee) must deduct tax at the source and transfer it to the Central Government's account. The deductee, from whose income tax has been deducted at the source, is eligible to receive credit for the deducted amount based on either Form 26AS or a TDS certificate issued by the deductor.

2. The elevation of the TDS limit indicates that banks will only deduct TDS from a senior citizen's interest income on fixed deposits if it surpasses Rs 1 lakh in a financial year. This change offers numerous advantages:

Lessened tax responsibility: Senior citizens will not have TDS withheld from interest income up to Rs 1 lakh, resulting in a higher disposable income.
Streamlined tax filing: With no TDS withheld until Rs 1 lakh, many senior citizens may be exempt from filing income tax returns (ITRs), reducing their compliance burden.
Augmented liquidity: Senior citizens will have greater access to funds throughout the financial year since TDS will not be deducted on interest income up to the new limit of Rs 1 lakh.

3. In her announcement, FM Sitharaman revealed that the annual TDS limit on rent will be raised from Rs 2.40 lakh to Rs 6 lakh. This adjustment aims to decrease the number of transactions subject to TDS, offering advantages to taxpayers who receive modest rental incomes. The main beneficiaries of this change are landlords, especially those with annual rental incomes below Rs 6 lakh, as their tenants will no longer need to deduct TDS on the rent.

Furthermore, tenants paying lower rental amounts will also benefit from this adjustment, as they will no longer be burdened with the additional paperwork and compliance requirements associated with TDS deduction and remittance.

Adhil Shetty, CEO, BankBazaar.com, said, “The Union Budget 2025 has brought meaningful relief for senior citizens enhancing their financial security. The pre-budget ask was to put more money into the hands of taxpayers to boost economic sentiment and consumption, which the announcements should achieve. The doubling of the TDS threshold on interest income to Rs 1 lakh and the hike in rental income limits to Rs 6 lakh will ease cash flow constraints, ensuring more money stays in their hands.”

CA (Dr.) Suresh Surana, said, “This change is a welcome relief for tenants whose compliance burden would be reduced significantly due to increase in the limit for TDS deduction on rental payments.”

“Further, this would also be beneficial for the property owners as it would ease their cash flow concerns to an extent as there shall not be any withholding of TDS by tenants up to Rs. 6,00,000 per annum,” he added.

Tax slabs for senior citizens

The tax rates and slabs for individuals, including senior citizens, opting for the new tax rate were revised in the Union Budget 2025. The updated rates set forth by the Finance Minister will come into effect for FY 2025-26 (AY 2026-27). It is important to note that Budget 2025 did not make any alterations to the old tax regime. 

Senior citizen tax slabs for FY 2025-26 (AY 2026-27) under New Tax Regime as per Budget 2025

Income range (Rs)    Tax rate
0 - 4 lakh    Nil
4 - 8 lakh    5%
8 - 12 lakh    10%
12 - 16 lakh    15%
16 - 20 lakh    20%
20 - 24 lakh    25%
Above 24 lakh    30%

Senior citizen tax slabs for FY 2025-26 (AY 2026-27) under Old Tax Regime as per Budget 2025

Tax slabs    Tax rate
Up to Rs 3,00,000    Nil
Rs 3,00,001- Rs 5,00,000    5%
Rs 5,00,001 to Rs 10,00,000    20%
Above Rs 10,00,00    30%