Senior citizen: I will earn ₹14 lakh from Pension and Fixed Deposit in FY 2025-26. What will be my tax?

In Budget 2025, Finance Minister Nirmala Sitharaman raised the TDS threshold for senior citizen bank deposits from ₹50,000 to ₹1 lakh. This means banks or post offices will not deduct tax at source (TDS) if the interest income from such deposits is not more than ₹1 lakh. However, this doesn't imply that ₹1 lakh of interest income from fixed deposits is tax-free for senior citizens.

But it appears that the TDS threshold hike has not been clearly understood by many, as highlighted by a query we received from a senior citizen on Thursday (April 3, 2025).

He wrote: "I got interest on Fixed Deposit about ₹7 lakh, pension amount ₹7 lakh in the current FY 2025-26. Means, total income from all sources is nearly ₹14 lakh. As per the new tax policy, up to ₹12 lakh income is tax-free, also up to ₹1 lakh interest is tax-free. How much tax will I have to pay in the current FY 2025-26?"

The following is a detailed answer to his query

First, let's be clear that ₹1 lakh interest income from fixed deposits has not become tax-free. The bank or the post office where you have your FD account will deduct TDS at 10% if the interest is above ₹1,00,000.

In your case, the total interest from FD is ₹7,00,000. Therefore, the TDS will be ₹70,000 (10% of ₹7,00,000). And the amount that you will get in hand or your savings account post TDS deduction is ₹6,30,000.

However, while filing your income tax return, you will need to report the full amount (₹7 lakh) as interest income from FD.

You will get a standard deduction of ₹75,000 on pension from your previous employer under the new regime. This means, only ₹6,25,00 of your pension income will be considered taxable.

There, total taxable income in your case will be the sum of income from FD + taxable pension = ₹7,00,000+₹6,25,000 = ₹13,25,000.

Total tax on ₹13,25,000 works out to be ₹78,750. However, you have already paid ₹70,000 as TDS. Thus, your tax liability will be ₹8750 (₹78,750-₹70,000).

The ITR for FY 2025-26 will be filed next year in June-July 2026.

Please note that the above explanation is based on the details you have provided. In case you have income from multiple sources, you should consult a tax professional.