Under the proposed Income Tax Bill 2025, individuals earning interest from fixed deposit accounts could face a 10 per cent tax, a measure, the government says, is aimed at ensuring fairness and simplifying tax compliance. The bill proposes that interest income, considered a form of passive income, be taxed through final withholding, meaning the bank will deduct the tax before crediting the interest to the depositor’s account. Taxpayers will not need to file additional tax returns on this income.
To help you understand how this would work, here’s a simple example:
If you deposit Nu 100,000 in a fixed deposit at the Bank of Bhutan for three years, the interest rate is 7 per cent per annum. This means you will earn annual interest of Nu 7,000.
Under the proposed tax rule, the bank will deduct 10 per cent of this interest as Tax Deducted at Source or TDS, which comes to Nu 700. After tax deduction, you as a depositor will receive Nu 6,300 for the year.
While the tax rate is flat, the amount deducted will vary depending on the size of the fixed deposit. In short, the bigger the savings, the higher the tax.
According to the government spokesperson, Industry, Commerce, and Employment Minister Namgyal Dorji, most people who earn interest from fixed deposits already have a high net worth.
By taxing the interest, the government hopes to reduce the gap between the rich and the poor and encourage people to invest their money in businesses or other economic activities instead of just keeping it in the bank.
The minister said, “Discussion on whether there should be a slab on fixed deposit amount to be taxed are also going on. Overall, this is just a recommendation from the government and this matter will be deliberated in the parliament”.”
The new measure is part of a broader package of tax reforms that also proposes a five per cent tax cut for salaried individuals and merging business income tax with personal income tax.
The bill has been introduced in the Parliament, and discussions are expected to take place in the coming days.
Samten Dolkar
Edited by Phub Gyem
