If you have a fixed deposit, you have probably noticed the bank deducts a small amount before crediting your interest. Many people assume this deduction, called TDS, is the full tax they owe on that interest, and stop thinking about it there. This is one of the most common and costly misunderstandings in personal tax filing. Here is how FD interest is actually taxed, and how to calculate what you genuinely owe.
Is FD Interest Taxable?
Yes, fully. Fixed deposit interest is taxed under the head “Income from Other Sources” and gets added to your total income for the year. Unlike capital gains, which get special, often lower tax rates, there is no concessional rate for FD interest. It is taxed at your regular income tax slab rate, whatever that happens to be based on your total income.
What TDS Does Your Bank Actually Deduct?
Under Section 194A of the Income Tax Act, your bank deducts TDS at 10 percent if your total FD interest from that bank crosses Rs 50,000 in a financial year, or Rs 1,00,000 if you are a senior citizen aged 60 or above. If you have not provided your PAN to the bank, this rate jumps to 20 percent. These thresholds were revised upward in Budget 2025, from the earlier Rs 40,000 and Rs 50,000 limits.
Why TDS Is Not Your Final Tax Liability
This is the part that trips people up. TDS is simply an advance collection toward your tax, not the actual amount you owe. Your real liability depends on your total income and which tax slab it falls into. Consider this example:
Suppose your salary and other income put you in the 20 percent tax slab, and you earned Rs 60,000 in FD interest this year. Your bank would deduct 10 percent TDS, which comes to Rs 6,000. But your actual tax liability on that interest, at your 20 percent slab, is Rs 12,000. This means you still owe an additional Rs 6,000 when you file your return.
The reverse is also true. If your total income is low enough that you fall in the 5 percent slab, or below the taxable threshold entirely, but TDS was still deducted at 10 percent, you can claim the excess back as a refund when you file your ITR.
How Do You Actually Calculate the Tax You Owe?
Follow these steps:
- Add up all your FD interest for the year across every bank where you hold a deposit. Check your Form 26AS or Annual Information Statement to make sure you have not missed any.
- Add this total to your other income, such as salary, business income, or rental income, to arrive at your gross total income.
- Apply any eligible deductions, keeping in mind that FD interest does not qualify for Section 80TTA, which applies only to savings account interest, not fixed deposits. Under the old tax regime, senior citizens can claim up to Rs 50,000 under Section 80TTB, which does cover FD interest. This deduction is not available under the new tax regime.
- Calculate your total tax liability based on the slab your final taxable income falls into.
- Subtract the TDS already deducted by your bank or banks. What remains is either additional tax you owe, or a refund you can claim.
What If You Have FDs Across Multiple Banks?
This is a common blind spot. TDS thresholds are calculated separately by each bank, not combined across all your accounts. If you have Rs 45,000 interest at one bank and Rs 45,000 at another, neither bank will deduct any TDS, since neither individually crosses the Rs 50,000 threshold. But your combined interest of Rs 90,000 is still fully taxable, and it is your responsibility to declare the full amount and pay tax on it accordingly when you file your return, regardless of whether any TDS was deducted.
Can You Avoid TDS Altogether?
If your total income for the year is below the taxable limit, you can submit Form 15G to each bank where you hold an FD, or Form 15H if you are a senior citizen. This tells the bank not to deduct TDS, since you do not expect to owe any tax. These forms need to be submitted at the start of each financial year and are valid for that year only. Keep in mind that under the new Income-tax Act, 2025, effective from April 1, 2026, Form 15G and Form 15H are being unified into a single Form 121 for FY 2026-27 onward, so the exact form name may change depending on which year’s return you are filing.
Submitting these forms only makes sense if your income is genuinely below the taxable threshold. If your income is taxable but you skip declaring interest income just because no TDS was deducted, you are still liable to pay the tax and could face a notice later, since your bank still reports the interest paid to the tax department even without deducting TDS on it.
What About Senior Citizens?
Senior citizens get two advantages here. First, the TDS threshold itself is higher, at Rs 1,00,000 instead of Rs 50,000. Second, under the old tax regime, Section 80TTB allows a deduction of up to Rs 50,000 on total interest income from deposits, including FDs, savings accounts, and post office deposits combined. This deduction is not available if you opt for the new tax regime, so it is worth comparing both regimes before deciding which one benefits you more if you rely significantly on FD interest income.
A Common Mistake: Declaring Interest Only at Maturity
If you hold a cumulative FD, where interest is paid out only at maturity rather than periodically, it is easy to assume you only need to declare the interest in the year it is finally paid. This is usually incorrect. FD interest is generally required to be reported on an accrual basis, meaning you should ideally declare the interest earned each year as it accrues, not wait until the FD matures to declare it all at once. Declaring a large lump sum in a single year at maturity, when it should have been spread across multiple years, can push you into a higher slab for that year and also create a mismatch with what your bank has already reported to the tax department.
The Bottom Line
The TDS deducted from your FD interest is a starting point, not the final word on what you owe. Before you file your return, add up every rupee of interest earned across all your accounts, check it against your Form 26AS or AIS, and calculate your actual liability based on your real tax slab. Getting this wrong in either direction, whether it means underpaying tax you genuinely owe or missing out on a refund you are entitled to, is a common and avoidable mistake.
Frequently Asked Questions
Is TDS on FD interest my final tax liability?
No. TDS is only an advance deduction. Your actual tax liability depends on your total income and applicable slab rate. You may owe additional tax if you fall in a higher slab, or be eligible for a refund if you fall in a lower one.
At what amount does TDS apply on FD interest?
Banks deduct 10 percent TDS if your total FD interest from that bank exceeds Rs 50,000 in a financial year, or Rs 1,00,000 for senior citizens. If PAN is not provided, the rate increases to 20 percent.
Do I owe tax on FD interest even if no TDS was deducted?
Yes. If your combined interest across multiple banks exceeds the taxable threshold but no single bank’s share crossed the TDS limit, you are still required to declare and pay tax on the full amount.
Can I claim a deduction on FD interest like I can on savings account interest?
No, not under Section 80TTA, which applies only to savings account interest up to Rs 10,000. Senior citizens can claim up to Rs 50,000 under Section 80TTB, which does cover FD interest, but only under the old tax regime.
How do I avoid TDS on my FD if my income is below the taxable limit?
Submit Form 15G, or Form 15H if you are a senior citizen, to each bank where you hold an FD at the start of the financial year. This is valid only if your total income genuinely falls below the taxable threshold.
Should I declare FD interest every year or only when the FD matures?
Interest is generally meant to be declared on an accrual basis, meaning each year as it accrues, rather than as one lump sum in the year of maturity. Declaring it correctly each year helps avoid a mismatch with your bank’s reporting and prevents being pushed into a higher slab in the maturity year.
