What is the Difference Between Tax and TDS on FD Interest?

FD interest is taxed at two stages:

• At the bank level through TDS, where applicable.
• At the individual level based on your total taxable income and applicable income tax slab.

1. Tax Deducted at Source (TDS) by the Bank

If the interest earned on your Fixed Deposits (FDs) with a bank during a financial year exceeds the prescribed TDS threshold (₹50,000 for individuals below 60 years of age and ₹1 lakh for senior citizens), the bank may deduct TDS before crediting or paying the interest.

If your estimated tax liability for the financial year is nil and you meet the prescribed eligibility conditions, you can submit Form 121 to the bank at the beginning of the financial year. This notifies the bank not to deduct TDS on your eligible FD interest. Form 121 is the new unified form introduced on 1 April 2026, replacing the earlier Form 15G and Form 15H.

2. Tax on Your Total Income

The interest earned on your Fixed Deposit is added to your total taxable income under the head 'Income from Other Sources' (even if TDS is deducted). Your final tax liability is then calculated based on the applicable income tax slab. Any TDS deducted by the bank can be adjusted against your final tax liability while filing your ITR.

Is TDS the Final Tax Paid on FD Interest?

TDS is not the final tax on your FD interest. It is only a portion of the tax collected in advance by the bank on behalf of the government.

If the TDS deducted is more than your actual tax liability, you can claim the excess amount as a refund while filing your Income Tax Return (ITR). However, until the refund is processed, the deducted amount may temporarily affect your monthly cash flow. On the other hand, if your actual tax liability is higher than the TDS deducted, you must pay the remaining tax while filing your ITR.

On How Much FD Interest Is TDS Deducted?

The table below shows the current FD interest thresholds beyond which banks may deduct TDS.

Is FD Interest Taxed Even If You Don't Fall Under the Tax Bracket?

If your total taxable income is below the applicable taxable limit, you won't have to pay any income tax. However, the bank may still deduct TDS on your FD interest if you have not submitted Form 121 declaring that your estimated tax liability is nil. If TDS is deducted even though you are not liable to pay tax, you can claim the deducted amount as a refund while filing your ITR.

How Much TDS Is Deducted on FD Interest?

The TDS rate on FD interest depends on whether you have provided your PAN to the bank. If you have provided your PAN, the bank generally deducts TDS at 10%.

When Does Advance Tax Apply on FD Interest?

If the net tax liability after considering TDS and other tax credits is ₹10,000 or more during a financial year, you may have to pay advance tax in quarterly instalments. This can happen if the tax deducted by the bank is lower than your actual tax liability on the FD interest and your other income.

Note: Resident senior citizens who do not have income from business or profession are generally not required to pay advance tax.

How Is Interest on a Joint Fixed Deposit Taxed?

Banks generally deduct TDS based on the PAN of the primary account holder. However, the actual tax liability depends on who contributed the funds for the Fixed Deposit.

Note: TDS deduction for joint FDs may vary based on the bank's process. Confirm the applicable procedure with your bank.

Are Tax-Saving Fixed Deposits Tax-Free?

A Tax-Saving Fixed Deposit allows you to claim a deduction of up to ₹1.5 lakh in a financial year under Section 80C of the Income-tax Act, within the overall deduction limit available under the section.

However, the interest earned on a Tax-Saving FD is taxable, just like the interest earned on a regular Fixed Deposit. It is added to your total income and taxed according to the applicable income tax slab.

How to Report FD Interest While Filing Your ITR?

Interest earned on Fixed Deposits should be reported under the head 'Income from Other Sources' while filing your ITR. You should report the total interest earned, even if no TDS was deducted by the bank.

Before filing your ITR, check your Annual Information Statement (AIS) and Form 26AS (now Form 168) to verify the interest income and TDS details reported by your bank. If you find any mismatch, get it corrected before filing your return.

What Tax Deductions are Available on FD Interest?

If you are a resident senior citizen, you can claim a deduction of up to ₹50,000 on interest earned from bank, post office, and co-operative bank deposits under Section 80TTB, subject to the applicable conditions.

Note: The deduction under Section 80TTB is available only under the old tax regime. It cannot be claimed under the new tax regime.

Final Thoughts

Whether your FD interest is paid monthly, quarterly, or at maturity, it is important to keep track of all your Fixed Deposits and the interest earned from each one. Missing any FD or its interest income can make filing your Income Tax Return (ITR) more difficult. Using your bank's digital dashboard to monitor your Fixed Deposits can make tracking your investments and tax obligations much easier.

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