New Delhi, March 30: As the Income Tax Act 2025 comes into effect from April 1, 2026, the Central Board of Direct Taxes (CBDT) has issued a key clarification regarding tax deducted at source (TDS) on interest earned from bank and post office deposits. The move aims to clear confusion among depositors and financial institutions about whether existing threshold exemptions will continue.

According to the clarification, TDS will apply only when interest income exceeds specified limits. For ordinary taxpayers, the threshold remains INR 50,000 per financial year, while for senior citizens, it is INR 1 lakh. This means banks and post offices will not deduct TDS if the interest earned stays within these limits. Income Tax Rules 2026: Key Changes for Salaried Taxpayers From April 1 and How Tax Filing Will Change.

CBDT further explained that under Section 402 of the new law, the definition of a “banking company” continues to include entities governed by the Banking Regulation Act 1949. Importantly, institutions referenced under Section 51 of this Act will also be treated as banking companies, even if not explicitly named in the new legislation. New Rules From 1 April 2026: List of Rule Changes That Will Impact Your Wallet.

This clarification ensures continuity with the existing framework under the Income-tax Act 1961, where TDS on interest income is governed by Section 194A. Under current rules, banks deduct TDS only when interest income crosses the defined thresholds, and this principle remains unchanged in the new law.

Under the Income Tax Act 2025, provisions related to TDS on interest income are outlined in Section 393(1). Despite changes in legal structure and definitions, the practical impact on taxpayers is minimal. The CBDT emphasized that the scope of institutions covered under the definition of banking companies remains largely the same.

For taxpayers, this means there will be no additional TDS burden due to the transition to the new law. Depositors can continue to enjoy threshold-based exemptions, and banks will not deduct tax on smaller interest earnings within the prescribed limits.

Overall, the clarification reassures millions of depositors that the shift to the new tax regime will not disrupt existing practices. The continuity in TDS rules ensures stability and predictability, especially for senior citizens and small savers who rely heavily on interest income.

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(The above story first appeared on LatestLY on Mar 30, 2026 11:54 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).