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For many people in India, FD interest serves as a source of passive income. But do you know that the interest on fixed deposits is taxable? Here’s how tax on FD interest works:
- 10% TDS is deducted by banks at source if your FD interest income is more than a certain threshold limit in a year
- FD interest income is added to your annual income during ITR filing and taxed at slab rates
But what are these TDS threshold limits? Are they the same for regular depositors and senior citizens? Understanding all this is important because the tax on FD interest impacts how much you can earn from the FD.
In this article, we answer all these questions and more, covering everything from TDS rates and TDS exemption limits to ways you can avoid TDS deductions in detail.
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Tax on FD Interest: How Much Tax is Deducted on FD Interest
Under Section 194A of the Income Tax Act, banks and financial institutions have to deduct TDS on FD interest if your annual interest income exceeds Rs. 50,000 (Rs. 100,000 for seniors) in a financial year.
Rates for TDS on FD interest are as follows:
- 10%: If PAN is available
- 20%: If PAN is not available
Deductions are made quarterly, and the bank issues Form 26AS as a TDS certificate, which you can use to tally your tax liabilities when filing your ITR.
But please note that TDS on FD interest is simply the prepayment of your income tax liability. The actual income tax on FD interest depends on your annual income and the applicable tax slab. This income tax on interest from fixed deposits is payable when you file your taxes.
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TDS Exemption Limit for FD Interest (2026)
Earlier, the TDS limit on FD interest was Rs. 40,000 for regular depositors and Rs. 50,000 for seniors. But this changed with the Union Budget 2025.
Effective 1st April 2025, banks will deduct TDS on interest from FDs for regular depositors if the total interest income earned from all your FDs in a single bank exceeds Rs. 50,000 in a financial year.
Similarly, for senior citizens, banks will deduct TDS on interest from fixed deposits if the total interest income earned from all FDs in a single bank exceeds Rs. 1 Lakh in a financial year.
Here’s how the new exemption limits for TDS on FD interest compare to the previous limits:
| Type of Depositor | New TDS Exemption Limit | Old TDS Exemption Limit |
| Regular Citizens (under 60 years of age) | Rs. 50,000 | Rs. 40,000 |
| Senior Citizens (above 60 years of age) | Rs. 1,00,000 | Rs. 50,000 |
How TDS is Calculated on FD Interest: Examples
Let’s look at a couple of scenarios to understand how TDS on FD interest is actually calculated:
Scenario 1:
Mr. Amit is a 45-year-old depositor who has opened an FD of Rs. 800,000 at 7.5% p.a. So, the annual interest he earns in this case will be Rs. 61,709.
Since this amount exceeds the Rs. 50,000 threshold for general depositors and he has linked his PAN details with the FD account, the bank deducts a 10% TDS on the FD interest amount. This means:
TDS = 10% of Rs. 61,709 = 6,170
Interest Credited = Rs. 61,709 – Rs. 6,170 = Rs. 55,539
Scenario 2:
Mr. Rahul is a 62-year-old senior citizen FD depositor who has opened an FD of Rs. 800,000 at 8% p.a. interest. Now, the annual interest he earns on the sum is Rs. 65,946
Since Mr. Rahul is a senior citizen (who has submitted Form 15H) and the new TDS rules have a limit of Rs. 1 Lakh for seniors, no TDS is deducted from his FD interest income. But he will still have to list his FD earnings as ‘Income from Other Sources’ while filing ITR.
Scenario 3:
Mr. Mohit is a 35-year-old regular depositor who has opened an FD of Rs. 700,000 at 7.8% p.a. interest. Now, the annual interest he earns from this FD is Rs. 56,218.
In normal circumstances, the bank would deduct 10% as TDS on FD interest. But Mr. Mohit did not submit his PAN details. As a result, the TDS rate is 20%. This means:
TDS = 20% of Rs. 56,218 = Rs. 11,244 (rounded off)
Interest Credited = Rs. 56,218 – Rs. 11,244 = Rs. 44,974
How to Avoid TDS on FD Interest?
If your annual income is below the taxable limit (Rs. 4 lakh under the new regime), you can avoid TDS deductions on FD interest by submitting Form 15G/15H to the bank. These self-declaration forms certify that your annual tax liability for the year is zero, so the bank doesn’t have to deduct any tax at source.
Let’s understand which form is applicable as per depositor type:
- Form 15G: If you are a regular depositor below 60 years of age, you have to use Form 15G.
- Form 15H: If you are a senior citizen above 60 years of age, you have to use Form 15H
Please note that submitting these forms does not mean there will be no income tax on FD interest or that your interest income is tax-exempt. You still have to declare the interest income from your FDs while filing your income tax returns.
Key Things to Note About TDS on FD Interest
Here are some important points you should remember about the application of tax on fixed deposit interest:
- The Rs. 50,000 (Rs. 1 Lakh for seniors) threshold is applicable for all FDs you hold with a particular bank or financial institution. So, if you hold FDs with multiple banks, this limit applies separately to each bank.
- You don’t have to pay TDS on FD interest if your total interest income is less than Rs. 50,000 in a given financial year, provided you submit Form 15G/15H.
- Senior citizens have a higher exemption limit, which can help them save taxes on their post-retirement income.
- You have to submit Form 15G/15H at the beginning of the year, and it must be renewed annually.
- In case you failed to submit these waivers on time and TDS was deducted, you can claim it as a refund (if your income is below the basic exemption limit) when filing ITR.
- If you have an outstanding income tax liability, you can adjust the TDS deducted by banks/financial institutions while filing your taxes. But keep Form 26AS (TDS Certificate) issued by the bank handy.
Summing Up Tax on FD Interest
So now you understand that interest from fixed deposits is taxable in India on two levels:
- Banks deduct 10% (20% without PAN) if your annual interest earnings are more than Rs. 50,000 (Rs. 1 Lakh for seniors)
- Interest income is added to your annual earnings and taxed as per your slab rate
But if your total annual income is below the minimum threshold, you can submit Form 15G (15H for seniors) to avoid TDS deductions.
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Tax on FD Interest FAQs
FD interest is added to your annual income and taxed under the ‘Income from Other Sources’ header. Banks also collect TDS at 10% (20% if PAN is not submitted) if the annual interest earned on all FDs with the same bank exceeds Rs. 50,000 (Rs. 1 Lakh for seniors).
Yes. If the bank has deducted TDS on your FD interest earnings but your total income is below the taxable limit, you can claim the amount deducted as TDS while filing taxes.
If you are a regular depositor below the age of 60 years, your annual FD interest of up to Rs. 50,000 will be tax-free. However, if you are a senior citizen, you can benefit from a higher exemption limit of up to Rs. 1 Lakh/year.
TDS on FD interest is calculated at a standard rate of 10% if you’ve submitted your PAN Card details. However, if you have not submitted your PAN details, TDS is applicable at 20%. Banks deduct this TDS from your fixed deposit interest earnings before crediting the remaining amount.
Interest on a fixed deposit is taxable under the Income Tax Act. You have to list it under the ‘Income from Other Sources’ header and add it to your total annual income. Post that, tax on interest from a fixed deposit is applicable as per your income tax slab.
However, if your income is below the basic exemption limit, you don’t have to pay income tax on interest from a fixed deposit.
Disclaimer
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