Tax on FD Interest: How to Pay Income Tax on Fixed Deposit Interest Income?

Fixed Deposits (FDs) interest attracts TDS at 10% under section 194A - “Interest other than interest on securities”. Tax needs to be deducted on FDs when the cross the specified thresh hold limit. 

FDs also allow you to exploit the complete potential of Section 80C to deduct Rs.1.5 lakh from your taxable income. It also ensures capital protection along with some interest returns. This article will cover when and how TDS needs to be deducted and tax needs to be paid on FD interest.

• TDS u/s 194A is not required to be deducted if the interest does not exceed a specified thresh-hold limit. 
• These limits are relaxed as follows:

Nature of Interest	Old Limit	New Limit
General limit	5,000	10,000
When the payer is bank, co-operative society or post office	40,000	50,000
For senior citizens	50,000	1,00,000

Fixed Deposits (FDs)

TDS Deduction

• Banks deduct TDS if the amount of interest is beyond Rs.50,000 (in the case of senior citizen, the threshold is Rs.1 lakh). 
• TDS is deducted at 10% at the time of credit of interest and not when the FD matures.
• You receive the payment net of TDS.
• However, TDS credit can be claimed on filing returns, thereby reducing the tax liability or resulting in a refund.

Illustration

For example, if you have an FD for 3 years – banks shall deduct TDS at the end of each year. (See below for more details on TDS on FDs).

Core Banking Solutions (CBS)

• CBS enables the banks to provide centralised services to their customers. 
• If the bank has adopted CBS, interest from all its branches is aggregated to determine whether it exceeds the TDS threshold.

Illustration

Mr.A made three fixed deposits of Rs.2,50,000 each at 9% with the Dwaraka, Janakpuri & Rohini branches of XYZ bank which has adopted CBS. In this case, despite of the annual interest being Rs.22,500 (i.e. 2,50,000*9/100) individually, which is within the prescribed limit of Rs.50,000, the bank needs to deduct TDS @ 10% under Section 194A considering the aggregate amount of interest credited by all branches exceeds the threshold limit of Rs.50,000.

Interest Taxation

• Interest income from fixed deposits is fully taxable. 
• It is taxed at slab rates applicable to your total income. 
• It is to be reported under the head ‘Income from Other Sources’ in your Income Tax Return. 

Recurring Deposits (RDs)

TDS Deduction

• A Recurring Deposit is a monthly savings plan that earns fixed interest over a chosen period.
• Interest on RDs is completely taxable according to your tax slabs. 
• Senior citizens can claim deduction on the interest income from RDs/FDs up to Rs 50,000 per year u/s 80TTB. 

Interest Taxation

• TDS provisions on RDs are the same as TDS provisions on FDs. 
• Banks deduct TDS at 10% if the amount of interest is beyond Rs.50,000 (in the case of senior citizen, the threshold is Rs.1 lakh).

TDS at a Higher Rate

In case you do not provide your PAN information to the bank, they will deduct 20% TDS. So make sure that the bank has your PAN details.

Income Tax on FD up to 50 Lakhs

Due to the changes made in the Budget 2025 to the tax slabs, individuals with a fixed deposit (FD) of Rs. 50 lakh will not have to pay any income tax on the interest earned, if the FD interest income is the sole income.

For example, if the FD has an interest rate of around 7%, the annual interest income from an FD of Rs. 50 lakh would be:

Rs. 50,00,000 x 7% = Rs. 3,50,000

Since Rs. 3,50,000 is below the Rs. 4,00,000 basic exemption limit, there will be no income tax liability. 

Form 15G and 15H

• Some investors may have more than Rs. 50,000 in interest income in a year, but their total income (including interest income) is less than the minimum exempt income.
• When there is no tax payable by the individual, the bank cannot deduct TDS. 
• However, in such cases, the investors must submit Form 15G or 15H to claim interest income without TDS.
• Form 15H is especially meant for senior citizens whereas the others can submit form 15G.
• The following are the income limits under old regime for submitting form 15G /H:

• Under the new regime, the limit for FY 2025-26 is Rs.4 lakhs, irrespective of age of individual.  

Still confused? Don't worry! Cleartax will auto-fill your FD interest income if you upload your AIS.

If you still have questions regarding the tax on FD interest, you can use the AI Co-pilot feature in our product to get answers to all your queries.

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