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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 earned on fixed deposits is taxable? Here’s how tax on FD interest works:
- Banks generally deduct TDS when the aggregate interest paid or credited on eligible deposits exceeds the applicable threshold during the financial year.
- FD interest is generally taxable as income from other sources and is included while calculating your total taxable income.
But what are these TDS threshold limits? Are they the same for regular depositors and senior citizens? Understanding these rules is important because the tax on FD interest can affect the amount you ultimately retain from your fixed deposit.
In this article, we answer these questions and more, covering TDS rates, applicable thresholds and ways eligible taxpayers can request non-deduction of TDS.
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Tax on FD Interest: How Much Tax is Deducted on FD Interest
Under the Income-tax Act, 1961, Section 194A governed TDS on interest other than interest on securities, including interest on eligible bank deposits. From 1 April 2026, the corresponding TDS provisions are consolidated under Section 393 of the Income-tax Act, 2025.
For bank deposits, the current TDS threshold is Rs. 50,000 for most depositors and Rs. 1 lakh for resident senior citizens. The applicable TDS rate for interest other than interest on securities is generally 10%.
TDS Rates on FD Interest
| Particulars | TDS rate |
| Standard TDS rate on eligible FD interest | 10% |
| Where PAN requirements are not met | Higher rate may apply, including 20% in applicable cases |
TDS is deducted when the applicable tax-deduction provisions are triggered. The deducted amount is reflected in Form 26AS, while the deductor generally provides Form 16A as the TDS certificate.
It is important to remember that TDS is only a prepayment of your income-tax liability. The actual tax payable on FD interest depends on your total taxable income and the applicable tax regime and rates.
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TDS Threshold for FD Interest: What Changed in Budget 2026?
The TDS threshold for interest on bank deposits was increased in Budget 2025 and remains unchanged under Budget 2026.
For the current tax year, banks generally deduct TDS when aggregate interest on eligible deposits exceeds Rs. 50,000 for most depositors or Rs. 1 lakh for resident senior citizens. These thresholds are specified under Section 393 of the Income-tax Act, 2025.
Budget 2026 did not further increase these bank-deposit TDS thresholds. Therefore, the Rs. 50,000 and Rs. 1 lakh limits continue to apply to eligible FD interest in Tax Year 2026–27.
The transition to the Income-tax Act, 2025 from 1 April 2026 mainly changes how the TDS provisions are structured and referenced. The Income Tax Department states that the rates and monetary thresholds have broadly been retained under the new Act.
TDS Thresholds on FD Interest in 2026
| Type of Depositor | TDS Threshold | Standard TDS Rate |
| Resident individual below 60 years | Rs. 50,000 | 10% |
| Resident senior citizen (60 years or older) | Rs. 1,00,000 | 10% |
| PAN requirements not met | Applicable threshold still applies | Higher rate may apply |
The thresholds refer to aggregate eligible interest paid or credited by the relevant bank or other specified payer during the tax year, subject to the applicable provisions.
Note: These are TDS thresholds, not income-tax exemptions. FD interest remains taxable even when it is below the TDS threshold.
Previous vs Current TDS Thresholds
| Type of Depositor | Current TDS Threshold (2026) | Earlier TDS Threshold |
| Regular citizens (below 60 years) | Rs. 50,000 | Rs. 40,000 |
| Senior citizens (60 years or older) | Rs. 1,00,000 | Rs. 50,000 |
The increase from Rs. 40,000 to Rs. 50,000 for most depositors and from Rs. 50,000 to Rs. 1 lakh for senior citizens took effect from 1 April 2025. Budget 2026 did not make a further change to these bank-deposit thresholds.
How TDS is Calculated on FD Interest: Examples
Let’s look at a few scenarios to understand how TDS on FD interest works.
Scenario 1: Regular Depositor Above the TDS Threshold
Mr. Amit is a 45-year-old depositor who has opened an FD of Rs. 8,00,000 at 7.5% p.a. Assuming annual interest of Rs. 60,000, the interest exceeds the Rs. 50,000 TDS threshold applicable to most depositors.
If TDS is deducted at 10%:
TDS = 10% of Rs. 60,000 = Rs. 6,000
Interest after TDS = Rs. 60,000 – Rs. 6,000 = Rs. 54,000
The TDS deducted is not necessarily Amit’s final tax liability. His final tax payable will depend on his total taxable income and applicable tax rates.
Scenario 2: Senior Citizen Below the TDS Threshold
Mr. Rahul is a 62-year-old senior citizen who has opened an FD of Rs. 8,00,000 at 8% p.a. Assuming annual interest of Rs. 64,000, the interest is below the Rs. 1 lakh TDS threshold applicable to resident senior citizens.
Therefore, the bank would generally not deduct TDS solely because of this interest amount.
However, the FD interest remains taxable and must be reported in the income-tax return.
If Rahul is eligible to make a nil-tax declaration, he can furnish the applicable declaration through Form 121 under the Income-tax Act, 2025.
Scenario 3: PAN Requirements Not Met
Mr. Mohit is a 35-year-old regular depositor who has opened an FD of Rs. 7,00,000 at 7.8% p.a. Assuming annual interest of Rs. 54,600, the amount exceeds the Rs. 50,000 TDS threshold applicable to most depositors.
With PAN details properly furnished, TDS at 10% would be:
TDS = 10% of Rs. 54,600 = Rs. 5,460
Interest after TDS = Rs. 54,600 – Rs. 5,460 = Rs. 49,140
If the PAN requirements are not met, a higher rate can apply under the applicable provisions. The higher-rate rules can result in TDS at 20% in applicable non-PAN cases.
How to Avoid TDS on FD Interest?
If you meet the eligibility conditions for a nil-tax declaration, you can request non-deduction of TDS on eligible FD interest.
Under the Income-tax Act, 1961, eligible taxpayers used Form 15G or Form 15H for this purpose. For a tax year beginning on or after 1 April 2026, the corresponding declaration is furnished through Form 121, prescribed under the Income-tax Rules, 2026.
Form 121 is a self-declaration under Section 393(6) of the Income-tax Act, 2025. It allows an eligible recipient to declare that the tax payable on their estimated total income for the relevant tax year will be nil.
The eligibility conditions broadly continue from the earlier framework. Form 121 is available to eligible resident individuals and other specified persons who satisfy the prescribed conditions. Companies and firms cannot furnish this declaration, and non-residents are not eligible to use it.
Please note that furnishing Form 121 does not make FD interest tax-exempt. It only allows eligible taxpayers to request non-deduction of TDS where the applicable conditions are met. The interest still needs to be considered while determining total taxable income.
Key Things to Note About TDS on FD Interest
Here are some important points to remember when considering tax on fixed deposit interest:
- The Rs. 50,000 threshold for most depositors and Rs. 1 lakh threshold for senior citizens apply to aggregate eligible interest covered by the relevant provisions, rather than being calculated separately for every FD.
- If you hold eligible FDs with different banks, the applicable bank-deposit threshold is considered separately for each bank, subject to the relevant provisions.
- The TDS threshold is not an income-tax exemption. Interest below the threshold can still form part of your taxable income.
- For Tax Year 2026–27 onwards, eligible taxpayers who want to make a nil-tax declaration should use Form 121 rather than the earlier Forms 15G/15H.
- The declaration should be furnished to the payer in the prescribed manner when required. Form 121 is intended for the relevant tax year and can be furnished as and when the specified income arises.
- If TDS has been deducted but your final tax liability is lower than the amount deducted, you can claim the applicable refund through your income-tax return.
- If you have an outstanding income-tax liability, the TDS already deducted can generally be taken into account while determining your final tax liability. Form 26AS can be used to verify the tax credit reflected against your PAN.
Summing Up Tax on FD Interest
Interest earned from fixed deposits is generally taxable in India, while TDS is a mechanism through which tax is collected in advance.
For eligible bank deposits, the current TDS threshold is Rs. 50,000 for most depositors and Rs. 1 lakh for resident senior citizens. The standard TDS rate is generally 10%, subject to higher-rate provisions where applicable.
Budget 2026 did not increase these FD-interest TDS thresholds. The main change relevant to the 2026 tax framework is that the TDS provisions have been consolidated under Section 393 of the Income-tax Act, 2025, with the existing rates and monetary thresholds broadly retained.
For Tax Year 2026–27 onwards, eligible taxpayers seeking non-deduction of TDS can use Form 121 instead of the earlier Forms 15G and 15H.
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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 generally deduct TDS at 10% if the aggregate interest on eligible FDs with the same bank exceeds Rs. 50,000 (Rs. 1 Lakh for resident senior citizens). A higher rate may apply where the applicable PAN requirements are not met.
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.
The Rs. 50,000 threshold for regular depositors and Rs. 1 Lakh threshold for senior citizens are TDS thresholds, not tax exemptions. FD interest can still be taxable even if it is below these limits.
TDS on FD interest is calculated at a standard rate of 10% if you’ve submitted your PAN Card details. If the applicable PAN requirements are not met, a higher TDS rate may apply, including 20% in relevant cases. 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 total taxable income is within the applicable tax-free threshold or you are otherwise eligible for a rebate, your final tax liability may be nil.
Disclaimer
Fixed returns do not constitute guaranteed or assured returns. Investments in corporate debt securities and municipal debt securities/securitized debt instruments are subject to credit risks, market risks, and default risks, including delay and/or default in payment. Read all the offer-related documents carefully. This blog/article should not be construed as financial advice or as an offer or recommendation to buy or sell any security or any products/services of/on GoldenPi or any product/services of its third-party client(s). For a detailed calculation of YTM, visit our website. T&C’s Apply.
