Is Your Fixed Deposit Interest Taxable? Here’s Everything You Need to Know

Fixed deposits are a long-standing investment choice that has been passed down through generations. They are secure, with consistent yields, and easily investable.

However, there is always the question of whether fixed deposit income is taxed or not. Fixed deposit interest income is taxable and is reported on your ITR as income from other sources. Read more to learn about the taxation on Fixed deposit in detail. 

Understanding TDS on Interest on FD

TDS (Tax Deducted at Source) is a tax collection method that deducts tax from various payments made to individuals. Banks deduct 10% on tds limit for fd interest 2025-26 over ₹50,000 for regular individuals and ₹1 lakh for seniors. For example, if you earn ₹60,000 in FD interest, the bank will charge 10% TDS. When filling up your income tax return, you must include all interest earned and claim the TDS deducted as a refund. 

ALSO READ: Latest FD Interest Rates

How is TDS Calculated on Fixed Deposit (FD)?

Interest income from FD is taxable 

Your overall tax liability includes interest earnings. You should also be aware that the interest you earn on a fixed deposit each year is practically merged with your annual income. Your tax bracket is based on your overall income. Because FD interest income is classified as "income from other sources," it is taxed at the source (also known as TDS). TDS is deducted at the time your bank credits your account with interest revenue. 

Let us learn a few things regarding FD tax-

• If your total annual income is less than ₹2.5 lakh, the bank will not charge you any taxes on your fixed deposit. However, certain lenders may ask you to file Forms 15G or 15H in order to claim the deductions.
• To avoid paying additional TDS, submit Forms 15G and 15H to the bank at the start of the fiscal year.
• If your total annual interest income from FDs is less than ₹40,000, it is exempt from TDS.
• However, if your interest income surpasses ₹40,000, TDS will be 10%. Furthermore, if you do not have a PAN card, your bank may deduct 20% of the TDS.

TDS on Fixed Deposit Interest Under Section 194A

Under Section 194A of the Income Tax Act, banks are required to deduct TDS on fixed deposit interest if it exceeds certain limits in a financial year. These rules are applicable for FY 2026-27.

• TDS is applicable only if total FD interest in a bank exceeds ₹50,000 for general citizens and ₹1,00,000 for senior citizens
• For NBFCs and other financial institutions, the TDS threshold is ₹10,000
• Once the threshold is crossed, TDS is deducted on the entire interest amount and not just the excess portion
• TDS rate is 10% if PAN is provided and linked to the account
• If PAN is not provided, TDS is deducted at 20%
• TDS is deducted on an accrual basis, meaning it is applied when interest is credited, even if not withdrawn
• Banks calculate total interest across all branches using PAN under core banking systems
• To avoid TDS, you can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens)
• A new Form 121 is expected to simplify TDS declaration process from April 2026
• TDS deducted is not final tax and can be adjusted or claimed as refund while filing ITR

TDS on FD Interest for NRIs

For Non-Resident Indians (NRIs), TDS on fixed deposit interest depends on the type of account and is governed by different tax rules compared to resident accounts.

• NRE (Non-Resident External) FD interest is completely tax-free in India and no TDS is deducted
• FCNR (Foreign Currency Non-Resident) deposits are also fully tax-exempt in India as long as NRI status is maintained
• NRO (Non-Resident Ordinary) FD interest is fully taxable and TDS is deducted at around 31.2% (including cess)
• There is no minimum threshold for NRO FD TDS, tax is deducted from the first rupee of interest
• If PAN is not provided, TDS can be deducted at a higher rate
• TDS for NRIs is governed under Section 195 instead of Section 194A
• You can reduce TDS using DTAA (Double Taxation Avoidance Agreement) by submitting TRC and Form 10F
• You can apply for lower TDS deduction through Form 13 under Section 197
• Excess TDS can be claimed as a refund by filing income tax return in India
• Even if FD interest is tax-free in India (NRE/FCNR), it may still be taxable in your country of residence

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

Understanding the fixed deposit income tax exemption limits is crucial for effective financial planning. Current Income Tax rules dictate that exemption limitations vary based on the depositor's age and taxable income.

Individuals, excluding seniors, are exempt from paying tds limit for fd interest 2025-26 up to ₹40,000. This means that TDS would not be deducted if the interest earned on an FD during a fiscal year is less than Rs 40,000. Senior citizens, on the other hand, qualify for a higher fixed deposit income tax exemption of ₹50,000 due to their financial circumstances.

Individuals with total taxable income of less than ₹2.5 lakh are completely excluded from TDS on fixed deposits. This exemption benefits people with lower incomes by ensuring that they are not burdened with tax deductions for their FDs.

It is vital to stay current with the most recent Income Tax regulations, as exemption levels are subject to change. Regular updates from government sources and financial institutions will help you make informed decisions and stay compliant with the latest TDS rules on FDs in India.

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

Income tax regulations govern TDS on interest on FD. TDS at 10% is withheld unless Form 15G/15H is filed if the annual interest reaches ₹40,000 (₹50,000 for seniors). 

How to Calculate Tax on FD Interest ?

To calculate taxation on fixed deposit interest, add the interest earnings from your FDs to your total income and use the applicable slab rates to figure your FD interest tax. The bank's TDS is subtracted from your overall FD tax liability.

When is Tax on Interest Income Payable?

If you have a tax due for include interest income in your total income, you must pay it when you complete your tax return for the fiscal year. If your interest income is more than ₹10,000, you may need to pay advance tax in quarterly installments.

It is crucial not to wait until maturity to register your interest income, since fixed deposit interest can place you in a higher tax bracket, resulting in bigger tax payments.  

How to Save TDS on Interest on FD? 

If your entire income is not taxed and you do not fall into the lowest tax category, you can send Form 15G or 15H to the bank at the beginning of each fiscal year to ensure that no TDS is taken. This exempts you from the TDS deduction on interest income.

Form 15H may only be submitted by seniors. Here are the details:

• If you're 80 or older, you can only file Form 15H if your taxable income is less than ₹5 lakh.
• If you are 60 years or older but under 80, you can submit Form 15H if your taxable income is less than ₹3 lakh.
• If you are under 60 years old, you can only file Form 15G if your taxable income is below ₹4 lakh (new tax system) or ₹2.5 lakh (old tax regime). 

ALSO READ: Best Fixed Deposit Interest Rate

FD Interest Tax for Senior Citizens 

FD interest is taxed based on the income tax bracket. Senior adults having FD interest income can earn a TDS exemption of up to ₹1 lakh per year (FY 2025-26). Senior citizens are entitled to a ₹50,000 tax exemption until March 2025. Those who earn less than the taxable limit, on the other hand, can request a tax exemption by completing Form 15H.

Conclusion

Understanding the taxes of fixed deposit interest will help you plan your investments more efficiently. Calculating tax liabilities and ensuring TDS deduction enables you to make informed decisions about your FD investments.