For a large segment of Indian savers, interest earned on bank deposits is a matter of financial security rather than surplus income. Yet the tax relief available on such earnings has remained unchanged for years, even as prices, medical costs, and daily expenses have steadily climbed.
As the Union Budget 2026 draws closer, tax professionals say this gap between policy and reality is once again becoming a talking point, particularly for retirees and conservative savers who continue to rely heavily on fixed deposits and savings accounts.
Under the old tax regime, the Income Tax Act can provide relief under Section 80TTA (up to Rs 10,000 for those under 60) and Section 80TTB (up to Rs 50,000 for senior citizens).
Section 80TTA
Taxpayers can claim a tax exemption of up to Rs 10,000 on savings bank interest income. This section applies to individuals and Hindu Undivided Families (HUFs) and is available only under the old tax regime. It’s important to note this only applies to interest earned from savings bank accounts, not fixed deposits, recurring deposits or corporate bonds.
Section 80TTB
Senior citizens (60 years and above) can claim a tax exemption of up to Rs 50,000 on interest income from all types of deposits, including savings accounts, fixed deposits, and recurring deposits.
Experts say these figures were set in a period when inflation was lower, and deposit rates were far less volatile and are demanding an increase from Rs 10,000 to Rs 20,000 for savings account interest and Rs 1 lakh for an FD.
“These limits were meaningful when they were introduced, but they have lost relevance over time,” an tax expert said. With inflation hovering around 5–6 percent in recent years and deposit rates moving higher, post-tax returns for savers have come under pressure.
Deductions that no longer stretch far enough
Tax experts argue that the real problem is not the existence of these deductions, but the fact that they have remained static for too long. Over time, the purchasing power of the relief has weakened, making the benefit largely symbolic for many taxpayers.
According to another tax expert, the interest income deduction caps “have not been revised as per the inflationary trends in our economy” and no longer align with current living costs.
There is growing expectation that Budget 2026 could address this by resetting the thresholds, particularly for senior citizens, for whom interest income often acts as a substitute for salary or pension.
Fixed deposits and the missing middle
Another area drawing attention is the treatment of fixed deposit interest for non-senior citizens. FD interest for younger taxpayers is fully taxable, despite FDs being the preferred savings option for risk-averse families.
“For most middle-class families, the bulk of interest income comes from fixed deposits, not savings accounts,” he pointed out, highlighting the disconnect between tax rules and household behaviour.
A limited, flat deduction on FD interest, restricted to bank and post office deposits, could offer targeted relief without complicating compliance. However, experts note that any such measure would need to be carefully balanced against the government’s broader aim of encouraging long-term, market-linked investments.
New tax regime and the question of balance
The new tax regime has steadily gained popularity due to lower slab rates and reduced paperwork. Even so, it continues to face criticism for offering little comfort to retirees and conservative savers.
Allowing a small, standardised deduction for interest income within the new regime could improve its appeal without undermining its structure. “Interest income is often seen as a necessity for households rather than a tax-saving strategy,” another tax expert said.
From a legal and administrative perspective, an advocate in Supreme Court, said any such relief should be built into the regime itself rather than introduced through multiple section-based claims. A calibrated enhancement, he noted, could protect purchasing power while maintaining fiscal discipline.
Who will gain if the limit is increased?
If deduction limits are revised, retirees are expected to be the primary beneficiaries. For many senior citizens, interest income represents a steady source of monthly cash flow rather than discretionary earnings. Small savers would also benefit, as even limited tax relief can improve post-tax income.
Experts suggest that any relief must remain carefully targeted. The principal beneficiaries should be small savers and retirees rather than higher-income taxpayers. “This can be ensured through appropriate caps, aggregation of interest income across institutions, and income-linked thresholds. A balanced approach would protect revenue, prevent misuse, and bring India’s interest-income taxation framework closer to global best practices while remaining sensitive to domestic realities,” another tax experts said.
