Income Tax 2025

Appearance

Deduction for interest on deposits. ​

153(1) ​

An assessee who is––

  • (a) an individual, not being a senior citizen; or
  • (b) an individual, being a senior citizen; or
  • (c) a Hindu undivided family, shall be allowed a deduction from the gross total income, subject to conditions specified in sub-section (2), where it includes income by way of interest on deposits with––
    • (i) a banking company to which the Banking Regulation Act, 1949, applies (including any bank or banking institution referred to in section 51 of that Act); or
    • (ii) a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or
    • (iii) a Post Office as defined in section 2(k) of the Post Office Act, 2023.

153(2) ​

The deduction under sub-section (1) shall be allowed for a tax year as follows:—

  • (a) in case of assessee mentioned in sub-section 1(a) or (c), the whole of the interest up to a maximum amount of ten thousand rupees on deposits in a savings account, excluding time deposits;
  • (b) in case of assessee mentioned in sub-section (1)(b), the whole of the interest up to a maximum amount of fifty thousand rupess on deposits in a savings account, including time deposits.

153(3) ​

Where the income referred to in this section is derived from any deposit in a savings account held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed under this section in respect of such income in computing the total income of any partner of the firm or any member of the association or any individual of the body .

153(4) ​

In this section, “time deposits” means the deposits repayable on expiry of fixed periods.

Explanation

Section Summary: ​

Section 153 of the new income tax law provides a deduction for interest earned on certain types of deposits (savings accounts and time deposits) held by individuals (including senior citizens) and Hindu Undivided Families (HUFs). The deduction is subject to specified limits and conditions, and it aims to incentivize savings by reducing the taxable income derived from interest on deposits.

Key Changes: ​

  1. Differential Limits for Senior Citizens: Senior citizens now have a higher deduction limit (₹50,000) compared to non-senior citizens and HUFs (₹10,000). This is a significant change to provide additional tax relief to senior citizens.
  2. Inclusion of Time Deposits for Senior Citizens: Senior citizens can claim deductions on interest from both savings accounts and time deposits, whereas non-senior citizens and HUFs can only claim deductions on savings account interest.
  3. Exclusion for Firms, AOPs, and BOIs: Interest income derived from deposits held by firms, associations of persons (AOPs), or bodies of individuals (BOIs) is not eligible for this deduction, even if the income is distributed to partners or members.

Practical Implications: ​

  1. For Individuals and HUFs:
    • Non-senior citizens and HUFs can claim a deduction of up to ₹10,000 on interest earned from savings accounts (excluding time deposits).
    • Senior citizens can claim a deduction of up to ₹50,000 on interest earned from both savings accounts and time deposits.
  2. For Senior Citizens: This section provides a higher tax benefit, encouraging them to invest in fixed deposits and savings accounts.
  3. For Firms, AOPs, and BOIs: No deduction is available for interest income earned on deposits held by these entities, even if the income is distributed to partners or members.

Critical Concepts: ​

  1. Time Deposits: These are deposits with a fixed tenure, such as fixed deposits (FDs), where the amount is repayable only after a specified period.
  2. Savings Account: A deposit account that allows withdrawals and earns interest, typically without a fixed tenure.
  3. Gross Total Income: The total income of an assessee before allowing any deductions under this section.
  4. Interaction with Other Laws: This section interacts with the Banking Regulation Act, 1949, and the Post Office Act, 2023, to define eligible deposit types.

Compliance Steps: ​

  1. Identify Eligible Deposits: Ensure the deposits are held with a banking company, co-operative society engaged in banking, or a Post Office.
  2. Separate Interest Income: For senior citizens, segregate interest from savings accounts and time deposits. For others, only savings account interest is relevant.
  3. Claim Deduction: While filing the income tax return, claim the deduction under Section 153(1) up to the applicable limit (₹10,000 or ₹50,000).
  4. Maintain Documentation: Keep bank statements or interest certificates to substantiate the interest income and the deduction claimed.

Examples: ​

  1. Non-Senior Citizen:

    • Mr. A, aged 40, earns ₹12,000 as interest from his savings account and ₹8,000 from a fixed deposit. He can claim a deduction of ₹10,000 (the maximum limit) on the savings account interest. The remaining ₹2,000 and the ₹8,000 from the fixed deposit will be taxable.

  2. Senior Citizen:

    • Mr. B, aged 70, earns ₹40,000 as interest from his savings account and ₹20,000 from a fixed deposit. He can claim a deduction of ₹50,000 (the maximum limit) on the total interest (₹40,000 + ₹20,000). The remaining ₹10,000 will be taxable.

  3. Firm or AOP:

    • A partnership firm earns ₹15,000 as interest from a savings account. Even if this income is distributed to partners, no deduction under Section 153 is allowed for the partners.

This section simplifies tax benefits for individuals and HUFs while encouraging savings, particularly among senior citizens.