Renting out a property? Or earning interest on fixed deposits (FD)? Then 2025 brings you a tax update you can’t ignore.
The new rules on TDS on rent and FD interest, effective from April 1, 2025, are designed to streamline compliance but only if you know what’s changed. From tenants having to deduct TDS monthly to landlords ensuring timely filings, and depositors checking their TDS certificates, everyone has something to pay attention to.
According to the income tax department, a gross collection of ₹27,02,974 lakh crore was reported through direct tax for FY 2024-2025 as of 31.03.2025, making it one of the most significant components of direct taxes.
So, what do these rule changes mean for your money? Let’s help you understand in simpler terms.
TDS on FD interest: What’s it?
Tax Deducted at Source (TDS) is a system under the Income Tax Act, 1961, where the payer (deductor) deducts tax at the time of making specified payments such as salary, rent, interest, and others, and deposits it to the government.
The payee (deductee) from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.
From 1 April 2025, TDS FD interest rules have been updated to give better relief and clarity to taxpayers. Here’s what’s changed:
- Higher exemption limits: For general taxpayers, the TDS threshold on FD interest has increased from ₹40,000 to ₹50,000 per year.
- Senior citizen benefit: For those aged 60+, the interest income exemption limit from fixed deposits, recurring deposits, etc, has doubled from ₹50,000 to ₹1 lakh per year.
- Standard TDS rate remains 10% on interest above the limit. However, if PAN is not submitted, the rate doubles to 20%.
Learn more about TDS on rent here: TDS on Rent – Section 194IB of Income Tax Act
TDS on rent: Monthly threshold & rates
With the updated rules, there are significant changes in how TDS on rent are applicable. Tenants are now required to deduct TDS on a monthly basis and deposit it with the income tax authorities
Key highlights include:
- New threshold: TDS is now applicable when the monthly rent crosses ₹50,000, replacing the previous annual limit of ₹2.4 lakh.
- Applicable rates: The standard TDS rate remains 10% for land, buildings, or furniture and 2% for plant and machinery. For individuals/HUFs not under tax audit, Section 194-IB continues to apply, requiring TDS at 5% if monthly rent exceeds ₹50,000.
- Form 26QC filing & Form 16C issuance: After deducting TDS, tenants must file Form 26QC within 30 days. They must also issue Form 16C (TDS certificate) to the landlord within 15 days of filing, as proof of tax deducted and deposited.
- Penalties for delay: Failing to deduct or pay TDS may attract a ₹200/day late fee under Section 234E, and additional interest or penalties.
- Expense disallowance for non-compliance: As per the updated rules, if a tenant (especially a business, Limited Liability Partnership, or Hindu Undivided Family liable under tax audit) fails to deduct or deposit TDS on rent, 30% of the rent paid may be disallowed as a business expense under Section 40(a)(ia).
This means the taxpayer cannot claim that portion as a deduction in their income tax return, potentially increasing their taxable income and overall tax liability.
Is TDS applicable on interest securities? Find out: Understanding Section 193: TDS on Interest from Securities
Removal of higher TDS for non-filers
The requirement to apply higher TDS/TCS rates for non-filers under Sections 206AB and 206CCA has been removed as per the Finance Act 2025.
- Sections 206AB and 206CCA omitted: These sections, which previously mandated higher TDS/TCS rates (either double the standard rate or 5%) for taxpayers who hadn’t filed income tax returns, no longer apply.
- PAN-based compliance only: From FY 2025–26 onwards, TDS/TCS is calculated solely based on PAN or Aadhaar status, eliminating the need to check ITR-filing history.
Old vs. New TDS rules: Rent & FD interest
For clarity, here’s a quick comparison of the previous and updated TDS rules for rent and FD interest for FY 2025-2026:
| Aspect | Before April 1, 2025 | From April 1, 2025 |
| FD interest(general threshold) | ₹40,000 per year | ₹50,000 per year |
| FD interest (senior citizens threshold) | ₹50,000 per year | ₹1,00,000 per year |
| FD interest TDS rate | 10% with PAN, 20% without | 10% with PAN, 20% without (unchanged) |
| Rent applicability | Annual rent > ₹2.4 lakh | Monthly rent > ₹50,000 |
| Rent TDS rate | 5% flat | 5% until Sept 30, 2024; 2% from Oct 1, 2024 |
| Form 26QC filing | Within 30 days the per old rules | Unchanged: Within 30 days of deduction |
| Higher TDS for non-filers (206AB/206CCA) | Yes – double or 5% | Removed under the Finance Act 2025 |
| Compliance basis | PAN and ITR-filing history | PAN or Aadhaar only |
What this means for you:
- Higher thresholds reduce the chances of TDS being deducted unnecessarily on small interest incomes.
- The monthly rent-based rule brings more tenants under the TDS net, so timely deduction and filing are now more important.
- Lower rent TDS rate from October 2024 offers relief to tenants, especially in high-rent cities.
- Removal of higher TDS for non-filers means no more need to check past return filing history, PAN or Aadhaar is enough.
Also read: How section 112A of Income Tax Act can boost your long term capital gains?
Conclusion
The updated TDS on rent and FD interest rules bring simplicity, fairness, and relief to taxpayers. With higher thresholds and PAN-based compliance, you can avoid unnecessary deductions.
Plan your rent and FD investments wisely, deduct TDS accurately, and file timely to avoid penalties. Staying informed ensures smooth compliance and better financial management.
FAQs
For FY 2025–26, TDS FD interest rules allow general taxpayers to earn up to ₹50,000 in FD interest annually without attracting TDS. For senior citizens, this exemption doubles to ₹1 lakh per year. Any interest earned above these thresholds is subject to 10% TDS if PAN is furnished, or 20% if PAN is absent. Banks deduct TDS only on interest that exceeds these limits, meaning no deduction applies below the threshold.
No, a 5-year fixed deposit is not fully tax-free. Only the principal amount qualifies for tax deduction under Section 80C, up to ₹1.5 lakh per financial year. However, the interest earned is taxable every year under “Income from Other Sources,” even during the lock-in period. It’s added to your total income and taxed as per your slab. You can submit Form 15G or 15H to avoid TDS, but reporting in ITR is still mandatory.
There’s no maximum limit on how much you can invest in a fixed deposit. But if annual interest exceeds ₹50,000 (₹1 lakh for senior citizens), banks deduct TDS. To manage tax and paperwork, investors often split large FDs across banks or stagger them by time. This helps keep TDS manageable, though total interest remains taxable. Also, large deposits may require additional compliance like PAN or Form 60 under anti-money laundering rules.
TDS on rent under Section 194-IB is 5% for rent above ₹50,000/month until September 30, 2024. From October 1, 2024, the rate reduces to 2%. However, if the landlord doesn’t provide a PAN, tenants must deduct 20% TDS. This TDS is deducted once annually, not monthly. After deduction, tenants must file Form 26QC within 30 days and issue Form 16C to the landlord within 15 days to complete compliance requirements .
For rent, individuals must file Form 26QC online within 30 days of TDS deduction. Then, generate and issue Form 16C to the landlord within 15 days. For fixed deposits, banks handle the TDS filing automatically. However, it’s your responsibility to check Form 26AS or AIS to ensure the TDS has been credited properly. This helps avoid tax credit mismatches while filing your income tax return and ensures smooth claim processing.
