Tax on FD Interest & How to Save It

Tax on FD Interest & How to Save It

Fixed deposits feel safe and simple — but the interest they pay is fully taxable, and many people are caught out by it. Understanding how tax on FD interest works, when the bank cuts TDS, and the legal ways to reduce that tax can save you a meaningful amount each year. Here's a plain-language guide for FY 2025-26 (AY 2026-27).

How FD Interest Is Taxed

Interest from a fixed deposit is added to your total income under the head "Income from Other Sources" and taxed at your income tax slab rate. There is no special lower rate and no exemption limit just for FD interest — if you're in the 30% slab, your FD interest is effectively taxed at 30%.

Importantly, FD interest is taxed every year as it accrues, not only when the deposit matures. So even on a 5-year cumulative FD that pays out at the end, you should report the interest earned each year and pay tax on it annually.

TDS on FD Interest

Banks deduct TDS (Tax Deducted at Source) on your FD interest once it crosses a yearly threshold. From FY 2025-26, those thresholds were raised:

Depositor	TDS applies when yearly FD interest exceeds	TDS rate
Below 60 (general)	₹50,000 (raised from ₹40,000)	10% (20% without PAN)
Senior citizen (60+)	₹1,00,000 (raised from ₹50,000)	10% (20% without PAN)

Two things people often get wrong:

• TDS is not your final tax. The bank deducts a flat 10%, but you still owe tax at your actual slab. If you're in a higher slab you'll pay more when you file; if your income is below the taxable limit, you can claim the TDS back as a refund.
• The threshold applies per bank, across all your branches and FDs with that bank. Splitting one large FD into several at the same bank doesn't avoid TDS.

You can see exactly how much TDS was deducted in your Form 26AS and AIS before filing.

How to Save Tax on FD Interest

1. Submit Form 15G or 15H

If your total income is below the taxable limit, you can submit Form 15G (if you're under 60) or Form 15H (if you're a senior citizen) to your bank at the start of the year. This tells the bank not to deduct TDS at all. (It does not make the interest tax-free — it only stops TDS if you genuinely owe no tax.)

2. Senior citizens: claim Section 80TTB

If you're 60 or older, Section 80TTB lets you deduct up to ₹50,000 of interest income — and unlike the deduction for younger savers, this includes fixed deposit interest (plus savings and recurring deposit interest). For most senior citizens this wipes out tax on a large chunk of their FD income.

3. Non-seniors: 80TTA helps with savings, not FDs

If you're under 60, Section 80TTA gives a deduction of up to ₹10,000 — but only on savings account interest, not FD interest. So it won't directly reduce tax on your fixed deposits.

4. Choose the right tax regime

Both 80TTB and 80TTA are available only under the old tax regime. If these deductions matter to you, factor them in when you decide between the old and new tax regime.

5. Spread deposits across family and years

FDs in the name of a non-earning adult family member (whose income stays below the taxable limit) are taxed in their hands — often at zero. You can also stagger maturities so a big lump of interest doesn't all fall into one financial year and push you into a higher slab.

6. Use a 5-year tax-saving FD for 80C

A 5-year tax-saving fixed deposit qualifies for a deduction of up to ₹1.5 lakh under Section 80C — useful, though remember the interest it earns is still taxable. Estimate your returns with our FD Calculator.

A Quick Reality Check

If you're in a high tax slab, after-tax FD returns can be modest. It's worth comparing them with other options and using deductions like 80TTB (for seniors) or schemes such as the Senior Citizen Savings Scheme. Use our Income Tax Calculator to see your overall liability, then file your return with the interest correctly reported.

Frequently Asked Questions

Is FD interest taxable in India?

Yes. Fixed deposit interest is fully taxable at your income tax slab rate under "Income from Other Sources." There is no special exemption for FD interest itself.

At what amount does the bank deduct TDS on FD interest?

For FY 2025-26, the bank deducts TDS once your yearly FD interest from that bank crosses ₹50,000 (general) or ₹1,00,000 for senior citizens. The rate is 10% (20% if your PAN isn't updated).

How can senior citizens save tax on FD interest?

Senior citizens can claim up to ₹50,000 under Section 80TTB (which includes FD interest) and submit Form 15H to avoid TDS if their income is below the taxable limit. Both work under the old tax regime.

Does submitting Form 15G/15H make FD interest tax-free?

No. Form 15G/15H only stops the bank from deducting TDS. It should be submitted only if your total income is genuinely below the taxable limit; otherwise you'll still owe tax when you file.

Is FD interest taxed every year or only at maturity?

FD interest is taxable every year as it accrues, even on cumulative FDs that pay out at the end. Report the interest earned each year rather than waiting for maturity.

Disclaimer: This article is for educational purposes only and reflects rules for FY 2025-26 (AY 2026-27). Tax laws change and individual situations vary. Please verify the latest rules on the official Income Tax Department website or consult a qualified tax advisor before making decisions.