TDS on Bank FD Interest: Rates, Thresholds & Form 121 (FY 2026-27)

TDS on Bank FD Interest: Rates, Thresholds & Form 121 (FY 2026-27)

Fixed deposits are among the most popular savings instruments in India. But every April, many FD holders are surprised to find that their bank has cut 10% from their interest before crediting it. This guide explains exactly when that happens, what you can do to avoid it (if you qualify), and how to recover it if TDS has already been deducted.

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When Does Your Bank Deduct TDS on FD Interest?

Under Section 194A of the Income Tax Act 1961 (now consolidated as Section 393(1) of the Income Tax Act 2025, effective April 1, 2026), banks are required to deduct TDS on interest paid to resident individuals when the interest crosses the threshold in a financial year. For businesses and NBFCs that pay interest and need to understand their TDS deduction obligations, see our Section 194A / 393 compliance guide.

The thresholds for banks, cooperative banks, and post offices are:

These thresholds were raised from Rs 10,000 and Rs 50,000 respectively, effective April 1, 2025, and continue to apply in FY 2026-27.

Important: The threshold is calculated on the total interest credited or accrued across all FD accounts held with the same bank under your PAN in that financial year. It is not a per-FD threshold.

For payers other than banks (companies, cooperative societies, individuals paying interest on loans) the threshold is Rs 10,000 per financial year.

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TDS Rate on Bank FD Interest

The 10% rate has not changed under the Income Tax Act 2025. If you have not submitted your PAN to your bank, update it immediately. The 20% rate applies retroactively from the start of the financial year if PAN is missing.

Example: You have an FD earning Rs 80,000 in interest in FY 2026-27. You are below 60 and your PAN is linked. Your bank will deduct TDS on Rs 80,000 at 10%, which is Rs 8,000. This is credited to the government on your behalf and appears in your Form 26AS.

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TDS on FDs Across Multiple Banks

A common question: "I have FDs at three different banks. Will TDS apply?"

The threshold is applied separately by each bank. The bank calculates your total FD interest from all accounts held with it under your PAN. It does not aggregate interest from other banks.

So if you earn Rs 40,000 in interest at Bank A and Rs 40,000 at Bank B in FY 2026-27, neither bank deducts TDS because each bank sees only Rs 40,000, which is below the Rs 50,000 threshold.

However, your total interest income of Rs 80,000 is still taxable. You must report it in your ITR and pay tax on it at your applicable slab rate. The absence of TDS deduction does not mean the income is exempt.

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TDS on FD Interest: Savings Account Is Treated Differently

Interest on savings bank accounts is exempt from TDS under Section 194A(3)(i) [Section 393(2) under the new Act]. TDS rules in this article apply only to fixed deposits, recurring deposits, and term deposits, not your regular savings account balance.

Interest on savings bank accounts up to Rs 10,000 per year is also deductible under Section 80TTA for general taxpayers. Senior citizens can claim up to Rs 50,000 (savings + FD interest combined) under Section 80TTB.

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How to Prevent TDS Deduction: Form 121

If your total income for the financial year, including FD interest, falls below the basic exemption limit, your tax liability is nil. In that case, you can submit Form 121 to your bank and request that TDS not be deducted.

Form 121 replaces Form 15G (for those below 60) and Form 15H (for senior citizens aged 60+) from April 1, 2026, under Section 393(6) of the Income Tax Act 2025. See our complete Form 121 guide for eligibility rules, the UIN tracking system, and how deductors process declarations.

Who can submit Form 121:

• Resident individuals of any age (including senior citizens)
• Hindu Undivided Families (HUFs)
• Income must be such that total tax liability for the year is nil after accounting for the Section 87A rebate

Who cannot submit Form 121:

• Non-resident Indians (NRIs). TDS on NRI FDs is governed separately under Section 195 / Section 393
• Companies and firms
• Those whose estimated total income exceeds the basic exemption + rebate limit

Basic exemption limits for FY 2026-27 (old regime):

• Below 60 years: Rs 2,50,000
• Senior citizens (60-79): Rs 3,00,000
• Super senior citizens (80+): Rs 5,00,000

Under the new tax regime (default from FY 2024-25), the basic exemption limit is Rs 3,00,000 for all ages. The Section 87A rebate under the new regime covers tax on total income up to Rs 12,00,000, making the effective tax-free limit Rs 12,00,000 for those without special-rate income.

How to submit Form 121:

1. Download the form from the Income Tax Department's e-filing portal (incometaxindia.gov.in) or collect it from your bank branch.
2. Fill in your name, PAN, estimated income for the year, and the interest amount on which you want TDS exemption.
3. Submit it to your bank, either in person at the branch or through net banking if your bank supports digital submission.
4. The bank assigns a 26-character Unique Identification Number (UIN) and quotes it in their quarterly TDS return.
5. Submit separately to each bank where you hold FDs.

If you hold FDs at multiple banks, you need to submit Form 121 to each bank individually. A single Form 121 does not cover all your deductors.

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What If TDS Has Already Been Deducted?

If your bank has already deducted TDS on your FD interest and you believe the deduction was incorrect (for instance, your income is below the taxable limit), you can claim a refund by:

1. Filing your ITR for the relevant assessment year and reporting the TDS credit.
2. The ITR pre-fills TDS data from Form 26AS and AIS. Verify that the bank's deduction appears correctly.
3. If your tax liability after computing total income is nil or less than the TDS deducted, the difference is refunded by the Income Tax Department after ITR processing.
4. Refunds are credited directly to your bank account if your account details are correctly linked to your PAN.

The refund timeline after ITR filing is typically 30 to 60 days for straightforward cases, though it can take longer if the return is selected for scrutiny.

Do not skip ITR filing just because your income is below the taxable limit. If TDS has been deducted and you want it back, filing an ITR is the only way to claim it.

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FD Interest and Tax Regime Choice

Your FD interest is taxable under Income from Other Sources regardless of which tax regime you choose.

Under the old tax regime:

• You can claim Section 80TTB deduction (up to Rs 50,000 for senior citizens) on savings + FD interest.
• Standard deductions and other Chapter VI-A deductions apply.
• If your net taxable income after deductions is below the exemption limit, you can submit Form 121 to avoid TDS.

Under the new tax regime (default):

• Section 80TTB deduction is not available.
• FD interest is added to income and taxed at the applicable slab rate.
• The Section 87A rebate covers total income up to Rs 12,00,000, so if your total income (including FD interest) stays within Rs 12,00,000, your tax liability is nil and you can submit Form 121.

For senior citizens with moderate FD income, the new regime's Rs 12,00,000 rebate threshold may actually be more beneficial than the old regime's Rs 50,000 80TTB deduction combined with the Rs 3,00,000 exemption limit.

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Frequently Asked Questions

My FD interest is Rs 45,000 this year. Will TDS be deducted?

No. Since Rs 45,000 is below the Rs 50,000 threshold for general taxpayers, your bank will not deduct TDS. However, the interest is still taxable income and should be reported in your ITR.

I am a senior citizen aged 65. What is my TDS threshold?

Your threshold is Rs 1,00,000 for banks, cooperative banks, and post offices. If your FD interest from a single bank is below Rs 1,00,000 in FY 2026-27, that bank will not deduct TDS.

My bank deducted TDS even though my total income is below Rs 5 lakh. What should I do?

File your ITR. Report the TDS credit shown in your Form 26AS. If your final tax liability is nil or less than the TDS deducted, the balance will be refunded. Going forward, submit Form 121 at the start of each financial year to prevent future deductions.

Can I submit Form 121 after the financial year has ended?

No. Form 121 must be submitted before interest is credited. Once the financial year ends and TDS has been deducted, you can only recover it through ITR filing.

My FD is a cumulative FD that matures in 3 years. When does TDS apply?

For cumulative FDs where interest is not paid out annually, the bank calculates accrued interest at the end of each financial year (as if paid) and applies the TDS threshold on that accrued amount. TDS is deducted annually, not only at maturity.

I have FDs at two banks: Rs 60,000 interest at Bank A and Rs 30,000 at Bank B. How much TDS will each bank deduct?

Bank A will deduct TDS on Rs 60,000 at 10% = Rs 6,000. Bank B will not deduct TDS because Rs 30,000 is below the Rs 50,000 threshold. Your total FD interest of Rs 90,000 is taxable and must be reported in your ITR.

Does TDS apply to NRI FDs?

Yes, but at a different rate and under different provisions. TDS on NRI FDs (FCNR or NRO) is deducted at 30% (plus surcharge and cess) under Section 195 / Section 393 of the Income Tax Act. NRIs are not eligible to submit Form 121. Interest on FCNR accounts is fully exempt from Indian income tax for NRIs.

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Summary Checklist for FY 2026-27

• Link your PAN to all FD accounts to ensure TDS is at 10% (not 20%)
• Check your total FD interest per bank. If below Rs 50,000 (Rs 1,00,000 for seniors), no TDS applies
• If your total income is below the taxable limit, submit Form 121 to each bank in April
• For cumulative FDs, ask your bank how much interest has accrued this year
• File your ITR and report FD interest under Income from Other Sources, even if no TDS was deducted
• If TDS was deducted, verify the credit in Form 26AS and claim a refund via ITR

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Sources: Section 194A of the Income Tax Act 1961 and Section 393(1) / 393(6) of the Income Tax Act 2025; CBDT Notification on revised TDS thresholds (Finance Act 2024); Income Tax Department e-filing portal (incometaxindia.gov.in); Cleartax FD TDS guide; BajajFinserv FD interest guide FY 2026-27.