Income Tax on Fixed Deposit Interest: A Complete Guide

Understanding Fixed Deposit Interest and Taxation

A fixed deposit (FD) is one of the safest investment options, offering guaranteed returns. However, the interest earned on these deposits is taxable under the Income Tax Act. Both general and senior citizens are liable to pay income tax on fixed deposit interest, but the applicable TDS rates and exemption limits vary. 

What is Tax Deducted at Source (TDS) on FD Interest?

Definition of TDS

Tax Deducted at Source (TDS) is a method of collecting income tax at the source of income generation. It requires the payer to deduct a specified tax percentage before making certain payments, such as salary, interest, commission, or rent, and remit it to the government.

In the context of FD interest income tax, TDS in India is the tax deducted by the bank or financial institution before crediting the interest amount to your account. For instance, the bank must deduct TDS at the applicable rate if your FD interest income exceeds a specified threshold.

Applicability of TDS on FD Interest

TDS is not deducted at the time of FD maturity but at the time of interest credit. For instance, if you have a 2-year FD, TDS will be deducted annually when the interest is credited to your account, even if you haven’t received the interest payout yet.

From FY 2025-26, the fixed deposit interest tax exemption limit has been revised to:

• ₹50,000 for regular depositors
• ₹1 lakh for senior citizens

For the previous financial year (FY 2024-25), the limits were ₹40,000 for regular depositors and ₹50,000 for senior citizens. So if the interest earned crosses the threshold, the TDS rate will be 10% if the bank has your PAN card number; if it does not, you are taxed at 20%. 

How is TDS Calculated on the Fixed Deposit (FD)?

Step-by-Step Calculation of TDS on FD Interest:

• Identify the applicable exemption limit:
• Calculate the total interest earned
• Determine the TDS rate based on the availability of PAN

So, if a regular citizen earns ₹65,000 as FD interest in a financial year (assuming that the person has given his PAN details), TDS will be calculated as follows:

• Exemption Limit: ₹50,000
• Interest Earned: ₹65,000
• TDS on the excess ₹15,000 (₹65,000 – ₹50,000) @ 10% = ₹1,500

What is the Exemption Limit for TDS Deduction on an FD?

Exemption Limits for Different Income Tax Slabs

The exemption vs deduction concept is important in understanding TDS on FD interest. While an exemption refers to income not subject to tax up to a specific limit, a deduction lets you reduce your taxable income through eligible expenses or investments. 

If your total taxable income is below the ₹4 lakh threshold (for FY 2025-26), no TDS will be deducted on your FD interest, regardless of the interest amount. However, to claim this exemption, you must submit Form 15G (for regular citizens) or Form 15H (for senior citizens) to the bank. 

What is TDS on FD Interest for General and Senior Citizens?

TDS Rates for General Citizens FY 2026

• 10% TDS on FD interest exceeding ₹50,000 in a financial year.
• 20% TDS if PAN is not submitted.

TDS Rates for Senior Citizens

• 10% TDS on FD interest exceeding ₹1,00,000 in a financial year.
• 20% TDS if PAN is not provided.

How to Avail TDS Waiver on an FD?

If your income falls below the taxable limit, you can avoid TDS deduction on your FD interest by submitting Form 15G or 15H to the bank.

Submitting Form 15G/15H

Form 15G and Form 15H are self-declaration forms that allow you to claim your FD interest income without TDS deduction.

• Form 15G: Applicable for individuals below 60 years.
• Form 15H: Applicable for senior citizens aged 60 years and above.

Both forms must be submitted at the start of each financial year to ensure that TDS is not deducted.

Eligibility Criteria for Form 15G/15H:

Eligibility depends on the income limits, which vary based on the tax regime and age group:

Age Group	Form	Income Limit (Old Regime)	Income Limit (New Regime – FY 2025-26)
Below 60 years	15G	₹2.5 lakhs	₹4 lakhs
60 to less than 80 years	15H	₹3 lakhs	₹4 lakhs
80 years or above	15H	₹5 lakhs	₹4 lakhs

Procedure for Submitting Form 15G/15H:

• Obtain Form 15G or 15H from the bank or download it from the Income Tax Department’s website.
• Fill in your name, PAN, age, financial year, estimated income, and interest income amount.
• Attach a copy of your PAN card along with the form.
• Submit the completed form to the bank, offline or online, at the start of the financial year.
• Collect an acknowledgment from the bank as proof of submission.

What is the Purpose of Form 15G and Form 15H?

Detailed Explanation of Form 15G and Form 15H:

Form 15G and Form 15H are self-declaration forms that help eligible individuals avoid TDS deduction on interest income if their total taxable income, including interest from fixed deposits, is below the basic exemption limit. A valid PAN must be provided when filing these forms.

• Form 15G: Applicable for individuals below 60 years, HUFs, and trusts whose total income, including FD interest and other earnings like tax on mutual funds, is below the basic exemption limit.
• Form 15H: Specifically for senior citizens aged 60 years or more. Even if the interest income exceeds the exemption limit, they can still file Form 15H if their total income remains below the applicable exemption limit.

Both forms can only be filed by resident taxpayers and not by NRIs. Some banks allow online submission of these forms through their official portals, simplifying the process for depositors.

How is Tax and TDS on FD Interest Levied?

Tax Implications at Maturity vs. Periodic Interest Payments

Tax implications regarding fixed deposits arise during the FD tenure and at maturity.

• Periodic Interest Payments: If you choose to receive interest payments periodically (monthly, quarterly, or annually), TDS is deducted at the time of each payment. For instance, if you receive quarterly interest on your FD, TDS will be deducted each quarter when the interest is credited to your account.
• At Maturity: If you opt for interest payment at maturity, TDS will be deducted at the end of the financial year when the interest is credited to your account, even if the FD has not matured. This deduction ensures that TDS liability is not deferred until the final payout.

Regardless of the interest payout option, the tax liability is calculated annually. The applicable TDS rates.

Understanding TDS on Fixed Deposit Interest

Comprehensive Explanation of TDS on FD Interest:

When crediting interest to the depositor’s account, TDS on FD interest is a tax deducted by financial institutions, including banks and NBFCs. The TDS rates vary based on the depositor’s PAN status, age, and the type of FD.

• Bank FDs: If the interest income of regular depositors exceeds ₹40,000 in a financial year or ₹50,000 for senior citizens, TDS is deducted at 10% (with PAN) or 20% (without PAN).
• NBFC FDs: The TDS threshold for NBFCs is ₹5,000. If the interest income exceeds this limit, TDS is deducted at 10% (with PAN) or 20% (without PAN).
• Joint FDs: In the case of joint FDs, the primary account holder is responsible for TDS deductions, regardless of the contributions by other holders.
• NRI FDs: TDS is deducted at 30% on interest income for NRO accounts, while NRE and FCNR deposits are tax-free.

How to Calculate FD Interest Tax on Interest Income?

Manual Calculation Method:

1. Calculate the total FD interest earned during the financial year.
2. Check if the interest exceeds the exemption limit (₹50,000/₹1,00,000).
3. Calculate TDS @ 10% on the excess amount.

Using Tax Calculators:

Online tax calculators can help you estimate the TDS amount on FD interest based on your financial details and applicable tax slab. You need to enter:

• Interest Earned
• Investment Amount
• Tenure
• Tax Slab
• Age
• PAN Status
• TDS Exemption Claims

When is Tax on Interest Income Payable?

Tax Payment Deadlines and Penalties for Late Payment:

The bank or financial institution holding the Fixed Deposit deducts the TDS on interest income and deposits it with the government.

Due Date for Deposit of TDS by Collectors:

• By the 7th of the following month after TDS deduction.
• For March: By April 30 for non-government deductors and March 31 for specific government deductors.

TDS Return Filing Due Dates:

• Q1 (April–June): By July 31
• Q2 (July–September): By October 31
• Q3 (October–December): By January 31
• Q4 (January–March): By May 31

Penalties for Late Payment:

• Section 234B: 1% monthly interest on unpaid tax if the advance tax is less than 90% of total liability.
• Section 234C: 1% interest per month for delayed installments of advance tax.
• Section 234F: Late filing fee of up to ₹5,000, increasing to ₹10,000 if filed after December 31.
  

How to Ensure Zero TDS Deduction by the Bank?

Strategies to Avoid TDS Deduction:

• Submit Form 15G/15H:

If your annual income is below the tax threshold limit, submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) to the bank.

• Invest in Family Members’ Names:

Distribute FD investments among family members like spouses or parents, as TDS is deducted based on individual income.

• Open FDs in Multiple Banks:

Spread your investments across different banks or NBFCs to stay within the TDS exemption limit for each institution.

FD Interest Tax for Senior Citizens

Tax Benefits and Concessions for Senior Citizens

• Higher TDS Exemption Limit: Senior citizens can claim TDS exemption on FD interest income up to ₹1 lakh for FY 2025-26.
• Section 80TTB Benefit: Under the old tax regime, senior citizens can claim a deduction of up to ₹50,000 on interest income from FDs under Section 80TTB. This deduction is only available to those opting for the old tax regime.
• Form 15H Submission: If the total income is below the taxable limit, senior citizens can submit Form 15H to avoid TDS deduction on FD interest.

Taxation on Fixed Deposits for Non-Resident Indians (NRIs)

Tax Implications for NRE and FCNR Accounts

Interest earned on NRO (Non-Resident Ordinary) fixed deposits is fully taxable in India at the applicable tax rate for NRIs.

• Tax-Free Interest on NRE and FCNR Accounts: Interest on NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) accounts is exempt from tax in India, making these accounts an attractive option for NRIs.
• TDS Rate for NRIs: NRIs are subject to a Tax Deducted at Source (TDS) of 30% on the interest income from fixed deposits, regardless of the type of account.

Final Thoughts

Key Takeaways and Recommendations

Interest earned on fixed deposits is taxable and subject to TDS. The TDS rates and exemption limits differ for regular and senior citizens. To minimize tax liability, investors must understand the applicable tax rates, deduction limits, and submission of forms like 15G/15H. Additionally, consider how FD interest income compares with other investment options like mutual funds to optimize tax savings.

For investors seeking to maximize their returns, exploring stock advisory services can provide valuable insights into asset allocation and tax-saving strategies. Proper planning ensures that your investments yield better post-tax returns without falling into the higher tax bracket.

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