Going easy on tax deducted at source, parity for ULIPs

Going easy on tax deducted at source, parity for ULIPs


One of the key issues faced by investors in deposits and more so by senior as well as super-senior citizens is the tax deducted at source (TDS), which kicks in at lower thresholds, thus leading to lower personal liquidity. Another key aspect for persons wishing to send their child abroad for studies is the lower threshold for TCS (tax collected at source).

Budget 2025 has raised the thresholds for 14 different transactions relating to both TDS and TCS, thus bringing relief to the middle-class.

Some of the key highlights of the move pertain to deposit taxation.

On another front, the Budget has also done away with the ambiguity in taxation related to Unit-linked insurance plans (ULIPs) and brought parity with other financial products.

Hiking TDS, TCS threshold

For those above 60, the Budget has announced a doubling of TDS threshold related to deposit interest.

From the current level of ₹50,000, TDS will now be applicable only if the interest income is more than ₹1 lakh, thus giving considerable relief to senior citizens.

For those below the age of 60, the TDS threshold has been increased by ₹10,000 to ₹50,000 from ₹40,000 currently.

The condition for this TDS relief is that the interest income must be given by banks, cooperative societies or post offices. Interest income from any other entity would not enjoy these new benefits.

Many individuals wish to send their kids abroad for higher education. Their remittance for funding the overseas education is subject to TCS. The threshold for TCS has been increased by ₹3 lakh to ₹10 lakh from ₹7 lakh earlier.

The TCS rate will continue to be at 0.5 per cent.

Clarity on ULIP taxation

ULIPs had been brought under the tax ambit a few years ago. Under section 10(10D) gains from ULIPs on annual premiums up to ₹2.5 lakh are tax free, subject to certain conditions. However, when premiums exceeded ₹2.5 lakh, the gains were added to the income of the investor and taxed at the marginal slab applicable.

However, the Budget has stated gains on ULIPs with annual premiums exceeding ₹2.5 lakh would be taxed at 12.5 per cent, provided the holding period is more than one year. Thus, there is substantial relief for ULIP investors.

This move also brings taxation of ULIPs on par with other market-linked financial products.

Investor takeaway

The higher TDS threshold is welcome for senior citizens. Depositors who are 60 and above and those who are 80 and above get 50-75 basis points higher interest compared to regular citizens on deposits from banks.

A higher TDS threshold is thus welcome for such persons. Punjab National Bank, Canara Bank, Indian Bank, Indian Overseas Bank and Union Bank of India are offering deposits with interest rates of 8-8.05 per cent. The tenors range from 400-456 days, which is a little over a year. RBL Bank offers 8.75 per cent interest on 500-day deposits.

All these deposits for super senior citizens aged above 80 years.

IDFC Bank offers 8.4 per cent for deposits of 400-500 days tenor for senior citizens aged 60 or above.

On ULIPs, despite the clarity and lower taxation, there is still not a solid case for investing in these instruments. ULIPs combine investments and insurance, which is not an ideal mix for most investors. Keeping investments and insurance separate is a key requirement of personal finance. Existing investors can hold on till they make reasonable gains and certainly till the five-year lock-in period ends.





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