What is expected for Recurring Deposit, Fixed Deposit accountholders from Budget 2025?

Fixed deposits (FDs) and recurring deposits (RDs) have always been seen as safe-haven investment options for investors across categories due to their steady returns.

Amid the recent volatility in the stock markets, safer investments like FDs and RDs are being seen as a suitable choice by risk-averse investors

Ahead of Budget 2025, like stock market and mutual fund investors, FD investors are also looking forward to tax relief and incentives for various savings schemes.

In the run-up to Union Budget 2025, experts recommended tax relief for FD investors. A report by SBI Research proposed tax relief, particularly for senior citizens and general FD account holders.

Currently, interest earnings on FDs are taxed according to the investor’s applicable tax slab, which makes it less attractive compared to market-linked investments like equities.

Experts also hope for a revision of the tax treatment for returns on FDs, such as allowing deductions or exemptions, and potentially reducing the lock-in period for tax-saving FDs from five years to three years.

Moreover, financial sector observers have suggested raising the tax-free interest limit for savings accounts from ₹10,000 to ₹20,000, benefiting nearly all savings account holders. Interest rates on FDs in leading banks like SBI, HDFC, and Axis range between 5% and 7.75%, depending on the maturity period.

The SBI Research report highlighted that this tax overhaul could lead to a revenue loss for the government, but the benefits might outweigh the costs, especially with increased deposit stability and lower borrowing costs for banks. This could also help promote infrastructure funding through banks.

Demand for senior citizens

For senior citizens, experts have demanded increasing deduction under Section 80 TTB of the Income Tax Act, 1961, for the interest income from ₹50,000 to ₹1 lakh. This change would ease financial burden for many elderly citizens, who rely on FD interest as their primary income.

Although FDs are safe and reliable, they have limitations, particularly with returns not always keeping pace with inflation. Experts suggest that a more tax-efficient FD scheme could make them more competitive, especially for retirees and those seeking stability over higher returns.