Taxation on Fixed Deposit Interest Explained (FY 2025-26 Update)
Disclaimer: Tax laws are subject to change.
September 13, 2024
The interest earned on Fixed Deposit is taxable as per the Income Tax Act, 1961. However, there's a gap when it comes to understanding how FD interest is taxed in India and how investors can save on their FD tax outgo.
In this article, we have simplified how taxation on fixed deposit interest works. This will help you understand how much of interest are you actually earning via your FD investments.
How is Tax and TDS on FD Interest Levied?
Interest income from fixed deposits is fully taxable and should be reported under the head 'Income from Other Sources' in your Income Tax Return. Your FD interest is taxed as per the income tax slab you fall into. To check your FD tax obligations, add your interest income to the total income, check the tax slab you fall into (for example: 30%) and calculate accordingly. You can use an online Income Tax Calculator to calculate the same.
Till FY 2024-25 (till March 2025), banks will deduct tax at source (TDS) at the time of crediting interest to your account if the interest income exceeds ₹40,000 for regular depositors and ₹50,000 for senior citizens. However, this threshold has been increased in Union Budget 2025-26. The new TDS exemption limit for Fixed Deposit is ₹50,000 for regular citizens and ₹1 lakh for senior citizens - this is applicable for FY 2025-26. The TDS applicable on FD interest is 10%, if you provide PAN card to the bank and 20% if you don't provide PAN card information to the bank.
It is important to note that the FD interest tax is deducted at the time of interest credit and not when the FD matures. For example, if you have a fixed deposit for 2 years, the bank will deduct TDS at the end of each year.
Understanding TDS on Fixed Deposit Interest
TDS or Tax Deducted at Source is a taxation mechanism through which tax is deducted from certain payments made to individuals. In the case of fixed deposits, the taxation on fixed deposit interest involves banks deducting TDS at a rate of 10% if the interest income exceeds ₹40,000 (₹50,000 for senior citizens). Please note that this TDS exemption on FD interest is applicable for FY 2024-25 (till March 2025). For FY 2025-26, the current TDS exemption limit has been hiked to ₹50,000 for regular citizens and ₹1 lakh for senior citizens.
For example, if you earn an FD interest of ₹60,000, the bank would deduct TDS of 10%. When filing your Income Tax Return, it is necessary to report the entire interest earned and claim the TDS deducted as a refund.
New TDS threshold limit for FDs (FY 2025-26):
Interest Paid by | Senior Citizen (₹) | Other Citizens (₹) |
Co-operative engaged in business | 1,00,000 | 50,000 |
Co-operative engaged in the 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 |
FD TDS Exemption Limit (FY 2024-25)
Interest Paid by | Senior Citizen (₹) | Other Citizens (₹) |
Co-operative engaged in business | 50,000 | 40,000 |
Co-operative engaged in the banking business | 50,000 | 40,000 |
Primary Agricultural Credit Society | 50,000 | 40,000 |
Co-operative Land Mortgage Bank | 50,000 | 40,000 |
Co-operative Land Development Bank | 50,000 | 40,000 |
It is important to note that if your total income is less than ₹4 lakh (for new tax regime, earlier the minimum tax slab was capped at ₹3 lakh) and ₹2.5 lakh (for old tax regime), no TDS will be deducted. To avoid TDS on your FD interest in case you don't fall under the minimum tax bracket, you can submit Form 15G or 15H (only for senior citizens aged 60 years and/or above) to the bank to claim interest income without TDS. You can view the details of TDS by checking your Form 26AS.
Please note that effective April 1, 2026, Form 121 will be the new unified self-declaration form in India, replacing forms 15G and 15H. It enables individuals to receive income (like bank interest) without Tax Deducted at Source (TDS) if their total estimated annual income is below the taxable limit.
How to Calculate FD Interest Tax on Interest Income
To calculate taxation on fixed deposit interest, add the interest earnings from your FDs to your total income and determine your FD interest tax liability based on the applicable slab rates. The bank's TDS is adjusted against your final FD tax liability.
When is Tax on Interest Income Payable?
If there is a tax liability on adding interest income to your total income, it must be paid while filing your income tax return for the financial year. However, if the FD tax payable after including your interest income exceeds ₹10,000, you are liable to pay advance tax in quarterly instalments.
It's important not to wait until maturity to report your interest income, as the taxation on fixed deposit interest can result in accumulated interest pushing you into a higher tax bracket, leading to higher tax payments.
How to Ensure Zero TDS Deduction by the Bank
To ensure no TDS is deducted, you can submit Form 15G or 15H to the bank at the beginning of each financial year if your total income is not subject to tax (you don't fall under the minimum tax slab). This exempts you from TDS deduction on interest income.
Form 15H can only be submitted by senior citizens. Here are the details:
- If your age is 80 years or more: You can file Form 15H only if your taxable income is less than ₹5 lakh.
- If your age is 60 years or more but less than 80 years: You can file Form 15H if your taxable income is less than ₹3 lakh.
- If your age is below 60 years: You can file Form 15G only if your taxable income is below ₹4 lakh (for new tax regime) and ₹2.5 lakh (for old tax regime).
Please note that effective April 1, 2026, Form 121 will be the new unified self-declaration form in India, replacing forms 15G and 15H. It enables individuals to receive income (like bank interest) without Tax Deducted at Source (TDS) if their total estimated annual income is below the taxable limit.
FD Interest Tax for Senior Citizens
FD interest is taxed as per the income tax slab. Senior citizens receiving interest income from FDs can avail TDS exemption up to ₹1 lakh per year (for FY 2025-26). Till March 2025, senior citizens can claim tax exemption up to ₹50,000. However, those falling below the taxable limit, can claim tax exemption by submitting Form 15H.
Final Thoughts
Understanding taxation on fixed deposit interest can help you plan your investments better. By calculating tax liability, and ensuring zero TDS deduction, you can make informed decisions about your FD investments.
Looking to grow your savings? Ujjivan SFB offers a wide range of fixed deposit products. Select the FD of your choice and take a step forward to your financial goals. Alternatively, you can browse through Ujjivan SFB product suite - our wide range of financial products are designed to make your financial life better.
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