TDS on Fixed Deposits Interest

Table of Content

1. Who Deducts TDS on FD Interest?

2. Current TDS Rates and Exemption Limits (FY 2025–26)

3. How Is TDS on FD Calculated?

4. How to Avoid or Reduce TDS on FD Interest?

5. Claiming Refund When Excess TDS Is Deducted

6. Recent Changes & Budget 2025 Updates

7. Tax Implications Beyond TDS: What You Must Know

8. Summary

9. FAQs about TDS on FD Interest

TDS on FD interest means that when you earn interest on your FD, the bank may deduct tax at the source before paying you. However, this deduction applies only to interest, not to the principal amount. This is mandated under Section 194A of the Income-Tax Act, 1961. 

Banks deduct TDS as an advance tax. It helps the government collect tax on FD interest upfront, rather than waiting for your income tax return.

Here is an easy example for a better understanding of TDS on interest on a fixed deposit:

Suppose Ms. Aditi has two fixed deposits in the same bank:

• FD 1 interest for the year: ₹30,000

• FD 2 interest for the year: ₹25,000

Total interest earned = ₹30,000 + ₹25,000 = ₹55,000

Since Aditi’s total FD interest (₹55,000) crosses the threshold, the bank must deduct TDS on the entire ₹55,000, not just the amount above the limit. She has already submitted her PAN, so the TDS rate is 10%.

Total interest = ₹55,000

TDS @ 10% of ₹55,000 = ₹5,500

Thus, the bank will credit ₹49,500 to her account (₹55,000 – ₹5,500 =  ₹49,500) and deposit the deducted ₹5,500 with the Income Tax Department under Aditi’s PAN.

Note: From FY2025–26, the TDS exemption limit for non-senior citizens is ₹50,000 and for senior citizens is ₹1,00,000.

Who Deducts TDS on FD Interest?

TDS on FD interest is deducted by the bank or financial institution where the FD is held. As per Section 194A of the Income Tax Act, banks must deduct TDS when the interest credited or paid to a customer crosses the prescribed threshold in a financial year.

• Joint Accounts and PAN Responsibility

For joint FDs, TDS is always linked to the primary account holder’s PAN, irrespective of who contributed the funds. Therefore, the interest is treated as the income of the first holder, and TDS is deducted accordingly.

• Timing of TDS Deduction

The bank deducts TDS when interest is credited to your FD or when it is paid out, whichever happens first. This means that even if interest is not withdrawn, tax can still be deducted when it is credited to the FD account.

• CBS vs Non-CBS Banks

CBS (Core Banking System) Banks: In CBS-enabled banks, TDS on FD interest is computed across all branches because a customer’s accounts are centrally linked to their PAN. 

Suppose you have FDs at Branch A, Branch B, and Branch C of the same CBS-enabled bank.

• Branch A interest: ₹20,000

• Branch B interest: ₹18,000

• Branch C interest: ₹15,000

Total interest = ₹53,000

Since the total crosses the ₹50,000 threshold (for non-senior citizens), the bank will deduct TDS on ₹53,000, even if each branch individually pays less than the threshold.

Non-CBS Banks: Earlier, interest was calculated branch-wise, and TDS was deducted separately at each branch. This sometimes allowed customers to avoid TDS by splitting deposits. CBS systems have eliminated this possibility. 

Using the same FD amounts:

• Branch A: ₹20,000

• Branch B: ₹18,000

• Branch C: ₹15,000

Since each branch calculated interest separately, none of the branches crossed the earlier threshold of ₹40,000. Therefore, no TDS was deducted even though the customer earned a total interest of ₹53,000.

The CBS system was introduced to prevent such avoidance.

Note: TDS on FD interest deduction is automated, PAN-linked, and governed by strict reporting and compliance rules to ensure correct advance tax collection for investors.

Current TDS Rates and Exemption Limits (FY 2025–26)

• TDS Rates and Exemption

The following table shows clearly the current TDS rates and exemption limits for FY2025-26:

• Old vs New TDS on FD Interests

The following table shows the old vs the new TDS on interest on fixed deposit:

• Example

Suppose Ms. Sharma (age 55, non-senior citizen) earns ₹75,000 in interest from all her FDs in FY 2025–26. Since the new threshold is ₹50,000, her bank will deduct 10% TDS on the entire ₹75,000 once it is credited, amounting to ₹7,500 (10% of ₹75,000).

How Is TDS on FD Calculated?

TDS on fixed deposit interest is calculated on the total interest credited or paid to you during a financial year. Banks calculate interest periodically and deduct TDS only when your total yearly FD interest crosses the exemption limit.

In CBS (Core Banking System) banks, all your FDs across different branches are linked to your PAN, allowing interest to be aggregated centrally. This means that even if each branch pays a small amount individually, the bank checks your combined interest to decide whether TDS applies.

In older non-CBS systems, interest was calculated branch-wise, which sometimes allowed customers to stay below the TDS limit at each branch. CBS now prevents this by consolidating all accounts under one PAN.

• Process of TDS Calculation

Formula: 

TDS Amount = Total Interest Earned × Applicable TDS Rate

Applicable TDS Rates:

• 10% when PAN is submitted

• 20% if PAN is not submitted

Examples

1. Interest below threshold → No TDS

If your total interest for the year is ₹40,000 (for non-senior citizens), it is below the ₹50,000 limit.

TDS deducted = ₹0

2. Interest above threshold → TDS applies

Total interest earned = ₹70,000

TDS rate = 10%

TDS = 70,000 × 10% = ₹7,000

3. PAN not submitted → Higher TDS

Total interest = ₹70,000

TDS rate without PAN = 20%

TDS = 70,000 × 20% = ₹14,000

This approach enables users to accurately estimate TDS and understand how banks compute deductions under the unified CBS system.

How to Avoid or Reduce TDS on FD Interest?

Investors can legally avoid or reduce TDS on FDs by following specific income tax provisions. The aim is to prevent TDS when your income is genuinely below the taxable limit.

1. Submit Form 15G (Non-Senior Citizens)

Form 15G is a self-declaration form that allows individuals below 60 years of age to request that the bank not deduct TDS on FD interest.

Eligibility Conditions:

• Your total annual income must be below the basic exemption limit.

• Your total interest income should not result in any tax liability after deductions.

Form 15G must be submitted at the beginning of every financial year or before interest is credited to ensure timely application. Banks may accept it online through their net banking portal or offline at the branch.

2. Submit Form 15H (Senior Citizens)

Form 15H is specifically for individuals aged 60 years and above.

Eligibility Conditions:

• Your estimated tax liability for the financial year must be nil.

• Unlike Form 15G, senior citizens may submit Form 15H even if their interest income exceeds the exemption limit, as long as their final taxable income is zero after deductions.

Form 15H should also be submitted annually to avoid automated TDS deductions.

3. Important Reminder: Interest Is Still Taxable

Avoiding TDS does not mean the interest becomes tax-free. You must report FD interest under “Income from Other Sources” while filing your ITR.

4. Consequences of Incorrect Declaration

Submitting Form 15G and 15H without meeting eligibility conditions is considered misreporting.

This may lead to:

• Penalties for incorrect self-declaration

• Interest on unpaid taxes

• Scrutiny or notices from the Income Tax Department

Using these forms responsibly ensures that only eligible taxpayers avoid TDS while staying fully compliant. 

While fixed deposits offer safety and predictable returns, they do not provide any financial protection in case of unforeseen events. This is where life insurance becomes an essential complement to your savings strategy. Along with tax benefits under Section 80C, life insurance ensures that your family’s financial future remains secure even if you are not around. Unlike FD interest, which is fully taxable, life insurance payouts are generally tax-free under Section 10(10D), making them a smart choice for both protection and tax efficiency.

Claiming Refund When Excess TDS Is Deducted

Sometimes, banks may deduct more TDS on FD interest than your actual tax liability. Since TDS is treated as advance tax, the final tax payable is calculated only when you file your Income Tax Return (ITR). If your total income is below the taxable limit or your tax liability is lower than the TDS deducted, you are eligible to claim a refund.

Here are the simple steps to report FD interest and TDS in your ITR:

Step 1: Reporting FD Interest and TDS in Your ITR

To claim the refund, you must report:

• Total FD interest under “Income from Other Sources”, and

• TDS details under Schedule TDS/TCS in your ITR form.

The TDS deducted by your bank appears in Form 26AS and AIS and must match what you report in your ITR. Any mismatch may delay the refund.

Step 2: Refund Process and Timeline

After filing your ITR and completing e-verification, the Income Tax Department processes your return. If excess TDS has been deducted, the refund will be credited directly to your bank account linked to your PAN. Refunds are usually processed within 4-5 weeks, depending on workload and verification.

Special Cases: Premature FD Closure and Adjustments

If an FD is closed prematurely, banks may recalculate the interest, which can result in excess or short TDS deduction. Any difference is adjusted when you file your ITR, either as a refund or as additional tax payable. This ensures taxpayers are not burdened with incorrect TDS deductions.

Recent Changes & Budget 2025 Updates

The Union Budget 2025 has introduced revised TDS thresholds for fixed deposits, offering moderate relief to taxpayers, especially small investors and senior citizens. These changes help reduce unnecessary TDS deductions and improve cash flow for depositors.

• Revised TDS Thresholds After Budget 2025

Impact:

More taxpayers (especially small and medium-sized FDs) will now fall below the TDS deduction threshold, reducing unnecessary deductions during the year.

• CBS vs Non-CBS Banks: How TDS is Calculated

Banks differ in how they calculate interest for TDS purposes:

Example 1: CBS Bank

A non-senior citizen earns interest of:

• Branch 1: ₹31,000

• Branch 2: ₹18,000

• Branch 3: ₹33,000

Total = ₹82,000 (exceeds ₹50,000) → TDS will be deducted.

Example 2: Non-CBS Bank

Same interest amounts, but the branch-wise limit applies.

Each branch ≤ ₹50,000 → No TDS, even though the total is ₹82,000.

Essential Guidelines for Taxpayers

The following guidelines ensure smoother cash flow for many investors while maintaining compliance with tax laws:

• Confirm with your bank whether it operates on CBS or non-CBS, as this directly affects TDS calculation.

• Monitor total annual FD interest, especially if you have multiple deposits across branches.

Tax Implications Beyond TDS: What You Must Know

Even though banks deduct TDS on FD interest, your final tax liability may differ. Understanding how FD interest fits into your overall tax planning is essential for accurate filing and smarter financial decisions.

• FD Interest Is Fully Taxable

All interest earned from fixed deposits is taxed under the head “Income from Other Sources.”

It is added to your total annual income and taxed according to your applicable slab rate, not at the TDS rate. This means people in higher tax slabs may need to pay extra tax beyond the 10% TDS deducted by the bank.

• TDS May Not Cover Your Complete Liability

If your slab rate is higher than 10%, you must pay self-assessment tax or advance tax on the remaining amount. Conversely, if your total income is below the taxable limit and TDS was still deducted, you can claim a refund while filing your ITR.

• Reporting FD Interest in Your ITR

FD interest details appear in Form 26AS, AIS, and TIS. You must total all FD interest (across all banks/branches) and report it under Income from Other Sources in your ITR. Ensure that the TDS credited by the bank matches your Form 26AS entries to avoid discrepancies.

• Impact on Broader Tax Planning

FD interest increases your taxable income, which may affect:

• Retirement planning, as senior citizens may benefit from a higher ₹1,00,000 TDS exemption.

• Tax-saving strategies require better investment diversification.

Note: Accurate reporting ensures compliance and prevents notices or short-payment penalties.

Summary

TDS on FD interest is deducted by banks when your annual interest crosses ₹50,000 for non-senior citizens or ₹1,00,000 for senior citizens from FY 2025–26. With PAN, the TDS rate is 10%; without PAN, it rises to 20%. TDS applies to the total interest across all branches under CBS. You can avoid deduction using Form 15G/15H if eligible or claim a refund through your ITR if excess TDS is deducted.

Additionally, the Resident senior citizen can claim the deduction under Section 80TTB of interest on deposits from bank, Co op bank and post office.

Since FD interest is taxable, complementing your fixed deposits with suitable life insurance plans can help you build a more balanced financial strategy—offering both tax benefits and long-term protection for your loved ones.

Note: If assessee has opted for Old tax regime, assessee shall be eligible to claim deduction under chapter VI-A (like Section 80C, 80D, 80CCC, 80TTA etc). If assessee opted for New tax regime only few deductions under Chapter VI-A such as 80JJAA, 80CCD(2), 80CCH(2) are available.

FAQs about TDS on FD Interest

Q: What is the TDS rate on FD?

The TDS on FD interest is 10%. It is 20% for Fixed Deposits held without submission of PAn details.  

Q: How much interest on FD is TDS free?

FD interest up to Rs. 40,000 for adults and up to Rs. 50,000 for senior citizens is exempted from TDS in one financial year.

Q: How can I avoid a TDS deduction on FD?

To avoid TDS on FD interest, submit Form 15G/15H. Secondly, split FD investments under different names of family members or hold FD accounts in different banks. 

Q: How is TDS calculated on FDs?

If the interest income on FD is more than Rs. 40,000 in one financial year, 10% of the interest income is deducted as TDS. This limit is Rs. 50,000 for senior citizens. 

Q: Will I be issued a certificate for TDS on FD?

Yes, certificates for TDS on FD are issued to the depositor. They also reflect under the individual’s PAN account statement. 

Q: What is the use of Form 26AS for TDS on Fixed Deposit?

Form 26AS is also known as the Tax Credit Statement. It provides a consolidated record of all TDS deductions made for a PAN number. 

Q: Is there any minimum amount for which there is no TDS on FD? 

If the annual interest income is less than Rs. 40,000 (Rs. 50,000 for senior citizens), no TDS on FD will be deducted.