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Is there a general rule for past vs. present tense for a character's internal thoughts? Direct thoughts in present, while indirect thoughts in past?

I'm thinking specifically of 1st person here.

I heard a loud screech from beyond the gates, then silence. What was going on?

vs.

I heard a loud screech from beyond the gates, then silence. What is going on?

Does this change in 3rd person? Does one tense imply they're the narrator's thoughts more than the character's, for example? Or is that distinction solely made by context and tone?

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Either can be used, as @DPT says.

I heard a loud screech from beyond the gates, then silence. 'What is going on?' I thought.

Here, effectively, you are presenting the thought as internal monologue. The character is effectively talking to himself. You therefore treat it as if you were writing dialogue - present tense. It doesn't really matter that the character is talking to himself rather than to someone else, nor that the words are thought rather than said out loud.

I heard a loud screech from beyond the gates, then silence. What was going on?

In this case, as @DPT states, the thought is kept closer to the narration. The character isn't necessarily verbalising the thought, it can be more of a feeling. Consider: when you are startled, you don't necessarily verbalise in your mind 'what's going on' - by the time it would have taken you to verbalise, you're already responding in one way or another.

Either way is valid, but they create different effects.

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    I think your last paragraph is the key. The effect of past tense is a narrative: this happened, then I thought this, then this happened. The effect of present tense is a sense of immediacy, and to some degree intimacy: it's as if the author/narrator and you are sharing the thought as you read it. So the choice will partly depend on how the desired effect suits the genre, subject, and your personal style.
    – Chappo Hasn't Forgotten
    Commented Aug 30, 2018 at 8:02
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Direct thoughts tend to be in present-tense, even if the third-person narration is in the past, though admittedly, my main gauge for this is A Song of Ice and Fire. I'm sure there are many legitimate ways of doing this, but I think the rule of thumb is if you're going to include direct thoughts at all (I personally avoid them), you treat it like dialogue, like it's being thought there and then.

However, this requires a distinction between narration and direct thoughts. In the case of A Song of Ice and Fire, they use italics.

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Either can work, and you can use both in the same manuscript.

Some agents and publishers say that keeping it in third past is a 'closer narration.'

"Come with me." She really ought to grab his hand and pull him. The danger was that real. He had no idea.

Sometimes converting to italicized first, present tense may create a closer narration.

"Come with me." I really ought to grab his hand and pull him. The danger is that real. He had no idea.

"He had no idea" might be thought or narration in either of those.

It is easy to go too far with the italics, especially if you are using them for emphasis as well, in dialog. You want to aim to get the reader immersed in your world and might need to play around with various combinations.

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I just came across this and although it is three years old I thought I'd add my humble opinion. This is a topic I have given a great deal of thought to and also researched since a couple of my beta readers tried correcting my tense to all past. I write third person, past tense but my internal monologue is in present tense. Internal monologue is the thought the character is having at the time so should be in present tense. We don't think in past tense unless we are thinking about a past event or incident. There are many different ways to format it, too. There is a growing trend not to italicise internal dialogue but instead to write it as normal text. If it's proceeded by an action tag it shouldn't need italics.

e.g. Sarah slumped down into her chair. Where the hell is Tom now. Can I really trust him?

That said, I have up to now always italicised direct internal dialogue where the third person POV character is using 'I' in their thoughts. But in my future books I plan to drop the italics altogether. The reader will be more engaged without the italics and many modern authors are doing this now.

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I would like to say that the thoughts take place in the present, given that they are narrating what is happening around them.

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