New TDS rules in FY26: How tax deduction on FDs, lottery wins will be calculated from April 1; details here

Effective April 1, 2025, modifications will be made to the TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) regulations impacting taxpayers, with a particular focus on senior citizens, investors, and commission earners. These adjustments were detailed in Budget 2025 and will come into effect on the specified date. TDS is pertinent to a range of payments that meet specified thresholds and rates. The primary goal of these revisions is to streamline tax adherence for taxpayers and merchants by removing superfluous complexities.

Key changes introduced in Budget 2025

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Changes to the Tax Deducted at Source (TDS) exemptions have been implemented to benefit various groups under the new provisions. 

Senior citizens will now be exempt from TDS on interest income up to Rs 1 lakh per year, a significant increase from the previous limit of Rs 50,000. For other individuals, the TDS exemption limit has been raised from Rs 40,000 to Rs 50,000.

Senior citizens can now enjoy a tax relief of up to Rs 15,000, depending on their tax bracket. Furthermore, the Budget has raised the TDS exemption limit on rental income from Rs 2.4 lakh to Rs 6 lakh per year, or Rs 50,000 per month, up from the previous limit of Rs 20,000 per month.

Investors in stocks and mutual funds will also benefit from the increased TDS exemption on dividends and income from mutual fund units or specific companies, which has been raised from Rs 5,000 to Rs 10,000.

Additionally, the revised TCS thresholds under the Liberalised Remittance Scheme (LRS) will benefit individuals involved in cross-border transactions, with the limit increased from Rs 7 lakh to Rs 10 lakh. 

Education loans from certain institutions are now fully exempt from TCS.

Higher TDS threshold for senior citizens

Senior citizens are now eligible for an increased exemption from TDS on interest income, with the limit raised to Rs 1 lakh per year from the previous limit of Rs 50,000. 

This change means that senior citizens can now benefit from a tax relief of up to Rs 15,000, depending on their tax bracket. In addition, the Budget has raised the TDS exemption limit on rental income from Rs 2.4 lakh to Rs 6 lakh per year, or Rs 50,000 per month, increasing from the previous limit of Rs 20,000 per month.

Starting April 1, interest income earned from fixed deposits (FDs), recurring deposits (RDs), and other such instruments will only be liable for deduction if the total amount held in a single bank account surpasses Rs 1 lakh within a financial year for senior citizens. Consequently, if a senior citizen ensures that their interest income remains below Rs 1 lakh, no TDS will be imposed by the bank.

For general citizens

The government has raised the TDS threshold for interest income from Rs 40,000 to Rs 50,000, starting April 2025, for non-senior citizens. This adjustment aims to lighten the tax burden on depositors, especially those who rely on FD interest as their main source of income. Under the updated regulations, TDS will be deducted by the bank if the total yearly interest amount exceeds Rs 50,000. However, no TDS will be deducted if a general citizen stays within the Rs 50,000 limit for their interest income.

TDS on lottery winnings and horse race bets

The government has revised the Tax Deducted at Source (TDS) rules related to winnings from lotteries, crossword puzzles, and horse races by eliminating the cumulative limit of Rs 10,000 in a financial year. Under the previous regulations, TDS was applicable when total winnings exceeded Rs 10,000 annually, even if received in several smaller sums. With the new rules, TDS will only be deducted when a single transaction surpasses Rs 10,000.

For instance, earlier, if someone won three separate lottery amounts of Rs 8,000 each, totaling Rs 24,000, TDS would be applied because the aggregate amount exceeded Rs 10,000. According to the new regulation, no TDS will be deducted since no single transaction exceeds Rs 10,000.

TDS on insurance and brokerage commissions

The Budget 2025 has raised the TDS threshold for various commissions, offering relief to insurance agents and brokers. The TDS threshold for insurance commission has been raised from Rs 15,000 to Rs 20,000, effective from 1 April 2025. These adjustments are intended to simplify compliance requirements and improve cash flow for small earners in these industries.

TDS on MFs or stocks

Furthermore, investors in mutual funds (MFs) or stocks will benefit from the exemption limit increase from Rs 5,000 to Rs 10,000 on dividends and income earned from MF units or specific companies

TDS on dividend

The Budget has increased the dividend tax deduction threshold limit from Rs 5,000 to Rs 10,000. As of April 1, 2025, investors in equities and mutual funds will benefit from this higher limit, allowing them to retain more of their dividend income as tax will only be deducted at source when the income exceeds Rs 10,000.