Attention FD Investors: SBI Proposes a Flat 15% Tax on Fixed Deposits

Budget 2025 Expectations: Potential Flat Tax on Fixed Deposits

With the Union Budget 2025 set to be unveiled on February 1, both salaried employees and business owners have high hopes for significant financial reforms. The State Bank of India (SBI), the country’s leading public sector bank, has recommended a major change in fixed deposit (FD) taxation. The bank has proposed a uniform 15% tax on FD interest earnings.

Important Update for FD Investors

If you rely on fixed deposits for investment, this update is crucial. The upcoming budget may introduce a fixed 15% tax on all FDs. This recommendation has been put forward by SBI to streamline the taxation process. Presently, FD earnings are taxed according to income tax slabs.

SBI’s Pre-Budget Proposal

In its pre-budget report titled “Preface to Union Budget 2025-26,” SBI has suggested implementing a flat 15% tax on interest income from all types of fixed deposits. The goal behind this proposal is to align deposit taxation with equity investments and enhance liquidity stability for banks. However, this move could result in a revenue shortfall of approximately Rs 10,408 crore annually for the government.

Current Taxation on FD Interest

At present, FD interest earnings are taxed based on income slabs, ranging from 5% to 30% per year. The interest is added to the individual’s total income, and tax is levied according to the applicable slab. Additionally, if the annual interest income exceeds Rs 40,000, a 10% TDS (Tax Deducted at Source) is deducted.

SBI’s Suggestion for Savings Account Tax Exemption

Apart from FD taxation, SBI has also recommended increasing the tax-exempt interest limit on savings accounts. Currently, interest earnings up to Rs 10,000 from a savings account are tax-free. SBI has proposed raising this exemption threshold to Rs 20,000, allowing more savings to remain untaxed.

Financial Impact on Government Revenue

If both these recommendations are implemented, the government will bear an additional fiscal burden. The combined cost of these measures is estimated at Rs 11,965 crore annually, which accounts for approximately 0.14% of India’s projected GDP of Rs 357.2 lakh crore for the financial year 2026.

Union Budget Announcement on February 1

The much-anticipated Union Budget 2025 will be presented on February 1 at 11 AM by Finance Minister Nirmala Sitharaman in Parliament. Discussions around potential revisions to income tax slabs are already underway. Additionally, key sectors such as textiles and railways are expected to receive significant budgetary allocations.