How is FD interest taxed in India? Fixed deposit interest is fully taxable at your income tax slab rate under "Income from Other Sources." Banks deduct TDS at 10% on interest exceeding Rs. 50,000 per year (Rs. 1,00,000 for senior citizens). No PAN means 20% TDS. You can avoid TDS by submitting Form 15G/15H if your total income is below the taxable limit (Income Tax Act, 1961, Section 194A; Finance Act, 2025).
Fixed deposits remain one of the most popular savings instruments in India. Banks, post offices, and NBFCs collectively hold crores of rupees in FDs from retail depositors. Yet many depositors discover the tax bite only when they see TDS deducted from their interest or receive a notice for unreported interest income.
This guide covers exactly how FD interest is taxed, when TDS applies, how to reduce or avoid TDS legally, and how to report FD interest correctly in your income tax return for AY 2026-27.
FD Interest Is Fully Taxable at Slab Rates
Unlike long-term capital gains on equity (taxed at a flat 12.5%) or dividends (which have a Rs. 10 lakh threshold for additional tax), FD interest has no concessional rate. It is added to your total income and taxed at the slab rate applicable to you.
New Tax Regime Slabs (Default for AY 2026-27)
| Total Income | Tax Rate |
|---|---|
| Up to Rs. 4,00,000 | 0% |
| Rs. 4,00,001 to Rs. 8,00,000 | 5% |
| Rs. 8,00,001 to Rs. 12,00,000 | 10% |
| Rs. 12,00,001 to Rs. 16,00,000 | 15% |
| Rs. 16,00,001 to Rs. 20,00,000 | 20% |
| Rs. 20,00,001 to Rs. 24,00,000 | 25% |
| Above Rs. 24,00,000 | 30% |
Plus 4% health and education cess on total tax. Surcharge applies above Rs. 50 lakh.
If your salary is Rs. 10 lakh and FD interest is Rs. 2 lakh, the Rs. 2 lakh is stacked on top and taxed at the marginal rate applicable to income between Rs. 12 lakh and Rs. 14 lakh (15% under the new regime).
TDS on FD Interest: Section 194A
Banks and financial institutions are required to deduct TDS on FD interest under Section 194A of the Income Tax Act, 1961 (Section 393 under the Income Tax Act, 2025).
TDS Thresholds and Rates
| Depositor Type | TDS Threshold (per bank, per year) | TDS Rate (with PAN) | TDS Rate (without PAN) |
|---|---|---|---|
| General (below 60 years) | Rs. 50,000 | 10% | 20% |
| Senior Citizen (60 and above) | Rs. 1,00,000 | 10% | 20% |
Key Rules
Per-bank calculation: TDS threshold is computed per banking institution, not across all banks. If you earn Rs. 45,000 interest in Bank A and Rs. 45,000 in Bank B, neither bank deducts TDS because neither crosses Rs. 50,000 individually. However, you must still report the full Rs. 90,000 in your ITR.
Accrual basis: Banks compute interest on an accrual basis. For a cumulative FD (where interest is reinvested), the bank attributes interest to each financial year even though you receive nothing until maturity. TDS is deducted on accrued interest each year.
Post offices: Post office time deposits and recurring deposits also attract TDS under the same thresholds.
NBFCs and co-operative banks: These follow the same Section 194A rules. Co-operative societies paying interest to members also deduct TDS once the threshold is crossed.
How to Avoid TDS on FD Interest
TDS is not the final tax. It is an advance collection. If your total income is below the taxable limit, you can avoid TDS entirely by submitting the right declaration form.
Form 15G and Form 15H
| Form | Who Can Submit | Condition |
|---|---|---|
| Form 15G | Resident individuals below 60 years, HUFs | Estimated total income for the year is below the basic exemption limit (Rs. 3,00,000 old regime; Rs. 4,00,000 new regime) |
| Form 15H | Resident senior citizens (60 and above) | Tax payable on estimated total income is nil after applying exemptions, deductions, and rebates |
When to submit: At the start of each financial year (April). Submit to every bank where you hold FDs. The declaration is valid for one financial year only.
Form 121: From FY 2026-27, the new Income Tax Act, 2025 replaces Form 15G and 15H with a unified Form 121. The eligibility conditions remain similar: your estimated total income must result in nil tax liability.
Lower Deduction Certificate (Section 197)
If your total income is taxable but the effective tax rate is lower than 10%, you can apply for a lower deduction certificate from the Assessing Officer. The bank will then deduct TDS at the rate specified in the certificate (which could be nil or a lower percentage).
How to apply: File Form 13 on the TRACES portal. The certificate is issued for a specific financial year and must be furnished to the bank.
Cumulative vs Non-Cumulative FD: Tax Treatment
| Feature | Cumulative FD | Non-Cumulative FD |
|---|---|---|
| Interest payment | Reinvested, paid at maturity | Paid monthly, quarterly, or annually |
| Tax treatment | Interest taxed in year it accrues (even though not received) | Interest taxed in year it is received/credited |
| TDS deduction | Deducted each year on accrued interest | Deducted when interest is credited |
| Cash flow impact | No interest received during tenure, but TDS still deducted | Interest received periodically |
Common mistake with cumulative FDs: Depositors assume tax applies only at maturity. In reality, banks compute interest for each financial year and deduct TDS accordingly. You must report the accrued interest in your ITR each year, not just in the maturity year.
Example: A 3-year cumulative FD of Rs. 10,00,000 at 7.5% accrues approximately Rs. 75,000 in Year 1, Rs. 80,625 in Year 2, and Rs. 86,672 in Year 3. TDS is deducted each year. You report Rs. 75,000 in AY 2026-27, Rs. 80,625 in AY 2027-28, and Rs. 86,672 in AY 2028-29.
Tax-Saving FD Under Section 80C
A 5-year tax-saving FD allows you to claim a deduction on the principal invested under Section 80C of the Income Tax Act.
Rules
| Parameter | Detail |
|---|---|
| Lock-in period | 5 years (no premature withdrawal) |
| Maximum deduction | Rs. 1,50,000 per financial year (shared with other 80C investments like PPF, ELSS, LIC) |
| Interest earned | Fully taxable at slab rates (no exemption on interest) |
| Loan against FD | Not available |
| Joint holding | Deduction available only to the first holder |
| Tax regime | Deduction available only under the old tax regime |
Important: The tax benefit is only on the principal amount invested, not on the interest earned. The interest from a tax-saving FD is taxed exactly like any other FD interest.
Available at
All scheduled banks, select co-operative banks, and post offices (5-year National Savings Time Deposit) offer tax-saving FDs.
Section 80TTB: Senior Citizen Interest Deduction
Senior citizens (aged 60 and above) can claim a deduction of up to Rs. 50,000 on interest income from deposits under Section 80TTB.
What Qualifies
- Interest from savings accounts in banks
- Interest from fixed deposits in banks
- Interest from recurring deposits
- Interest from post office deposits
What Does Not Qualify
- Interest from bonds or debentures
- Interest from loans given to individuals or companies
- Interest from any non-deposit instrument
Regime Restriction
Section 80TTB is a Chapter VI-A deduction and is not available under the new tax regime (Section 115BAC). Under the new regime, the entire FD interest is taxable without this deduction.
For non-senior citizens: Section 80TTA provides a deduction of up to Rs. 10,000 on savings account interest only. FD interest does not qualify under 80TTA.
How to Report FD Interest in Your ITR
FD interest is reported under Schedule OS (Other Sources) in your income tax return.
Step-by-Step
-
Collect interest certificates from every bank where you hold FDs. Banks issue these annually or you can download from net banking.
-
Cross-check with AIS/TIS: Log into the income tax portal and verify the Annual Information Statement (AIS) and Taxpayer Information Summary (TIS). These list all interest income reported by banks to the department.
-
Report gross interest: Enter the total interest earned (before TDS) in Schedule OS under "Interest from deposits (banks, post offices, co-operative societies)."
-
Claim TDS credit: TDS deducted by banks appears in Form 26AS and AIS. Ensure these match the TDS certificates. Claim the TDS in Schedule TDS of your ITR.
-
Claim 80TTB (if eligible): Senior citizens filing under the old regime enter the deduction (up to Rs. 50,000) in Schedule VI-A.
Which ITR Form to Use
| Situation | ITR Form |
|---|---|
| Salary + FD interest only (up to 2 house properties) | ITR-1 |
| FD interest only (no other income) | ITR-1 |
| FD interest + business income | ITR-3 or ITR-4 |
| NRI with Indian FD interest | ITR-2 |
Common Mistakes That Lead to Notices
1. Not reporting FD interest from all banks. The income tax department receives data from every bank via the Statement of Financial Transactions (SFT). If your ITR omits interest from even one bank, the system flags a mismatch.
2. Reporting only TDS amount, not gross interest. Your ITR must show the full interest earned, not just the TDS deducted. If Rs. 80,000 interest was earned and Rs. 8,000 TDS deducted, report Rs. 80,000 as income and claim Rs. 8,000 as TDS credit.
3. Ignoring cumulative FD interest. Accrued interest on cumulative FDs must be reported each year, not just at maturity.
4. FD in minor child's name. Interest on FDs held in a minor child's name is clubbed with the parent's income under Section 64(1A). The parent with the higher income includes this interest in their return. An exemption of Rs. 1,500 per child is available under Section 10(32).
5. FD in joint names. Interest is taxable in the hands of the first holder (or the person who made the deposit if different from the first holder). Both holders cannot split the interest.
FD Interest for NRIs
NRIs holding NRO (Non-Resident Ordinary) fixed deposits in India are subject to TDS at 30% (plus applicable surcharge and cess) on interest income, regardless of the amount. The threshold of Rs. 50,000 does not apply to NRIs.
NRE (Non-Resident External) FD interest is fully exempt from income tax in India under Section 10(4)(ii), and no TDS is deducted.
FCNR (Foreign Currency Non-Resident) FD interest is also exempt under Section 10(4)(ii).
| FD Type | Taxability in India | TDS Rate |
|---|---|---|
| NRO FD | Fully taxable at slab rates | 30% (no threshold) |
| NRE FD | Exempt | Nil |
| FCNR FD | Exempt | Nil |
NRIs can apply for a lower TDS rate under the applicable Double Taxation Avoidance Agreement (DTAA) by submitting Form 10F and a Tax Residency Certificate (TRC) to the bank.
Strategies to Reduce Tax on FD Interest
1. Split FDs across family members. If your spouse or parents have lower taxable income, consider FDs in their names. Each person gets the Rs. 50,000 TDS threshold independently, and the interest is taxed at their (lower) slab rate. Ensure the funds genuinely belong to them to avoid clubbing provisions.
2. Choose the right tax regime. If you are a senior citizen with significant FD interest, the old tax regime with Section 80TTB (Rs. 50,000 deduction) may save more tax than the new regime. Run the numbers for both regimes before filing.
3. Ladder your FDs. Instead of one large FD, split into multiple FDs with staggered maturity dates. This does not reduce tax directly but gives liquidity and lets you time interest recognition.
4. Consider debt mutual funds. For holding periods beyond 3 years, debt mutual fund gains are taxed as long-term capital gains at 12.5% (with indexation benefit removed from FY 2023-24 but still at a flat 12.5% which may be lower than your slab rate). Compare post-tax returns before deciding.
5. Use Form 15G/15H. If your total income is below the taxable threshold, submit these forms to every bank to prevent TDS deduction and avoid the refund cycle.
Worked Example: Tax on FD Interest
Scenario: Salaried individual, age 45, total salary income Rs. 8,50,000 (after standard deduction), FD interest Rs. 1,20,000 across two banks (Rs. 70,000 from Bank A, Rs. 50,000 from Bank B). Filing under new tax regime.
TDS deducted:
- Bank A: Rs. 7,000 (10% of Rs. 70,000, since it exceeds Rs. 50,000)
- Bank B: Rs. 0 (Rs. 50,000 does not exceed the threshold)
- Total TDS: Rs. 7,000
Tax computation:
| Component | Amount |
|---|---|
| Salary income (after standard deduction) | Rs. 8,50,000 |
| FD interest (Bank A + Bank B) | Rs. 1,20,000 |
| Gross total income | Rs. 9,70,000 |
| Tax on Rs. 9,70,000 (new regime) | Rs. 37,000 |
| Less: Section 87A rebate | Rs. 0 (income exceeds Rs. 12 lakh threshold? No, Rs. 9.7L is below Rs. 12L, so full rebate of Rs. 37,000 applies) |
| Tax after rebate | Rs. 0 |
| Less: TDS already deducted | Rs. 7,000 |
| Refund due | Rs. 7,000 |
In this case, the taxpayer gets a full refund of TDS because total income is within the Section 87A rebate limit. Filing the ITR is essential to claim this refund.
Summary
| Point | Detail |
|---|---|
| Taxability | FD interest is fully taxable at slab rates |
| Head of income | Income from Other Sources |
| TDS threshold | Rs. 50,000 (general), Rs. 1,00,000 (senior citizens) |
| TDS rate | 10% (with PAN), 20% (without PAN) |
| TDS avoidance | Form 15G/15H (Form 121 from FY 2026-27) |
| Senior citizen deduction | Section 80TTB: up to Rs. 50,000 (old regime only) |
| Tax-saving FD | Section 80C: up to Rs. 1,50,000 on 5-year FD (old regime only) |
| NRI NRO FD | TDS at 30%, no threshold |
| NRI NRE/FCNR FD | Exempt from tax |
Source: Income Tax Act, 1961, Section 194A; Income Tax Act, 2025, Section 393; Finance Act, 2025; CBDT Notification dated 15 March 2025 (threshold revision); incometax.gov.in AY 2026-27 filing guidelines.