Fixed deposits (FDs) are a popular way to grow your savings safely. They offer guaranteed returns, which makes them a preferred choice for many investors. It’s important to know that the interest earned on FDs is taxable and must be reported when filing your income tax return.
Before you enjoy the returns from your FD, it’s important to understand how the interest will be taxed and how it can impact your overall income. Knowing the tax rules can help you plan better and avoid surprises at the time of filing your income tax returns.
In this guide, we’ll explain everything about tax on FD interest — including how it’s taxed, how TDS applies, and ways you can manage or reduce your tax burden
| Interest earned on Fixed Deposits (FDs) is taxable under ‘Income from Other Sources’. Banks deduct TDS at 10% if interest exceeds ₹40,000 (₹50,000 for seniors) in a year. |
Taxability of FD Interest in India
Yes, the interest earned on fixed deposits is fully taxable in India. It is treated as part of your annual income and taxed according to the income tax slab you fall under.
FDs earn interest at a fixed rate over a fixed period, and that interest is considered “Income from Other Sources” — not salary or business income. So, even if you don’t withdraw the interest and it just gets added back to the FD, it is still counted as income for that financial year.
This means whether you earn ₹1,000 or ₹1 lakh in FD interest, you are required to report it while filing your income tax return — and pay tax on it as per your applicable slab rate.
| If your total income is below ₹4 lakh under the new tax regime or ₹2.5 lakh under the old regime, you can avoid TDS on FD interest by submitting Form 15G (for individuals) or Form 15H (for senior citizens) to the bank. TDS details can be checked in your Form 26AS. |
TDS Exemption Limits for Fixed Deposits
If you have fixed deposits with a cooperative bank or credit society, the TDS exemption thresholds may differ slightly. Here’s a quick look at the latest limits for both senior and other citizens:
TDS Threshold Limits for FY 2025–26
| Interest Paid By | Senior Citizens (₹) | Other Citizens (₹) |
| Co-operative engaged in business | 1,00,000 | 50,000 |
| Co-operative engaged in banking business | 1,00,000 | 50,000 |
| Primary Agricultural Credit Society | 1,00,000 | 50,000 |
| Co-operative Land Mortgage Bank | 1,00,000 | 50,000 |
| Co-operative Land Development Bank | 1,00,000 | 50,000 |
Note:
These limits represent the maximum interest income not subject to TDS for the given financial year.
FD Interest Taxation
Let’s understand how interest earned from FD (capital gains tax) will be taxed below:
Added to Your Total Income
The interest you earn from fixed deposits is added to your total income for the financial year. It is then taxed based on the income tax slab you fall under.
For example, if you’re in the 20% tax slab and you earn ₹10,000 as FD interest, you will have to pay ₹2,000 as tax on that interest.
TDS (Tax Deducted at Source) on FD Interest
Banks are required to deduct tax at source (TDS) before crediting the interest to your account if the total interest earned in a financial year crosses a certain limit.
FD TDS Limit:
• ₹40,000 per year (for regular individuals)
• ₹50,000 per year (for senior citizens)
If your total FD interest exceeds this limit with a single bank, TDS (Tax Deducted at Source) will apply.
TDS Rates
• 10% TDS if you’ve provided your PAN to the bank
• 20% TDS if you haven’t provided PAN
That’s why it’s important to ensure your PAN is updated with your bank.
TDS is Not the Final Tax
TDS acts as an advance payment of tax. Your actual tax liability is calculated at the end of the year based on your total income.
If your total income falls in a higher or lower slab, you will either:
⇒ Pay more tax (if you owe more than what was deducted), or
⇒ Claim a refund (if the TDS was higher than needed)
Ways to Check TDS Deducted
You can check how much TDS has been deducted on your FD interest using Form 26AS, available on the Income Tax website. This helps you know how much tax has already been paid on your behalf before you file your return.
Avoid TDS on FD Interest with Form 15G or 15H
If your income is below the taxable limit, you can avoid unnecessary TDS deductions on FD interest by submitting Form 15G or Form 15H to your bank.
More on Form 15G
Form 15G is a self-declaration form that individuals (below 60 years of age) can submit to the bank, requesting no TDS deduction on their interest income.
Eligibility for Form 15G:
- ⇒ You are below 60 years of age
- ⇒ Your total income (including FD interest) is below the basic exemption limit (₹2.5 lakh for most individuals)
- ⇒ Your total interest income does not exceed the exemption limit
More on Form 15H
Form 15H is similar to Form 15G, but it’s meant only for senior citizens (aged 60 or above).
Eligibility for Form 15H:
- ⇒ You are a senior citizen (60 years or older)
- ⇒ Your total tax liability is zero (i.e., you don’t owe any tax after deductions)
| Why These Forms Matter
If you’re eligible and don’t submit these forms:
|
Tips to Manage Tax on Fixed Deposit
Paying tax on FD interest is unavoidable if your total income is taxable — but you can manage it better with a few smart strategies.
Submit Form 15G or 15H (if eligible)
If your income is below the exemption limit or you’re a senior citizen with no tax liability, submit these forms to avoid TDS altogether. This saves you from having to claim refunds later.
Stagger Your FD Investments
Instead of opening one large FD, consider splitting the amount into multiple FDs with different maturity dates. This helps:
- ⇒ Spread the interest income across financial years
- ⇒ Keep each FD’s annual interest below the TDS threshold
Consider Tax-Saving FDs
Some banks offer Tax-Saving Fixed Deposits under Section 80C of the Income Tax Act:
- ⇒ You can claim up to ₹1.5 lakh as a deduction
- ⇒ These FDs have a 5-year lock-in period
- ⇒ Important: The interest earned is still taxable
Explore Alternatives like Debt Mutual Funds
If you’re in a higher tax slab, you might consider debt mutual funds for better tax efficiency. These are taxed differently (under capital gains) but come with their own risks and rules. It’s best to speak to a financial advisor before making the switch.
Include FD Interest in Your Tax Planning
FD interest is often overlooked during tax planning, but including it ensures more accurate calculations.
Conclusion
Interest earned on fixed deposits may feel like passive income, but it’s important to remember that it’s not tax-free. Whether you’re investing small amounts or parking a large sum, understanding how FD interest is taxed can help you plan better and avoid unpleasant surprises during tax filing.
From knowing when TDS applies to using Forms 15G or 15H effectively, a little awareness goes a long way in managing your returns wisely. If you’re unsure about how FD interest fits into your overall tax picture, consider speaking with a tax professional — especially if you’re juggling multiple investments.
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Frequently Asked Questions
Q: How much FD interest is tax-free?
A: For the financial year 2024–25, interest earned up to ₹40,000 annually from all FDs combined is exempt from Tax Deducted at Source (TDS). For senior citizens (aged 60 and above), this limit is ₹50,000.
Q: Is FD more than ₹10 lakh taxable?
A: The principal amount of an FD, regardless of size, is not taxable. However, the interest earned is taxable based on your income tax slab.
Q: How much tax on ₹1 crore Fixed Deposit?
A: Assuming an annual interest rate of 6%, a ₹1 crore FD would yield ₹6 lakh in interest annually. This interest is added to your income and taxed according to your applicable tax slab.
Q: How much FD interest is tax-free in SBI?
A: SBI follows the standard TDS exemption limits: ₹40,000 for general customers and ₹50,000 for senior citizens.
Q: What is the limit of FD tax saving?
A: Tax-saving FDs under Section 80C allow a deduction of up to ₹1.5 lakh per financial year. These FDs have a lock-in period of 5 years.
