BAJAJ BROKING
March 12, 2025
1 mins read
Fixed deposits are one of the safest and most popular investment options in India. Truth be told, one of the major reasons behind it is that FDs offer guaranteed returns over a fixed tenure. However, the interest earned on FDs is not entirely tax-free. Banks and financial institutions usually deduct TDS (Tax Deducted at Source) in case the interest income crosses a certain threshold in a financial year. This deduction is made right before the interest is credited to your account. Consequently, the bank deposits the deducted amount with the Income Tax Department.
Furthermore, TDS is applicable under Section 194A of the Income Tax Act. The deduction rate entirely depends on factors like the investors’ age, total interest earned, and their tax status. While TDS ensures tax compliance, many investors unknowingly end up paying more tax than required. The sole reason behind this is lack of awareness about the legal provisions and exemption limits to reduce the TDS liability. Let's take a closer look at how TDS applies to FD interest, what are the calculation methods, and everything about TDS on FD.
In layman's terms, TDS is a system where tax is deducted at the time of income generation rather than at the time of filing returns. When you earn interest on a fixed deposit, banks deduct TDS if the total interest exceeds a certain limit in one financial year. This makes sure that the tax is collected in advance rather than waiting for the depositor to pay it at the end of the year.
As per the Union Budget 2025, TDS on FD interest is deducted at 10% if total interest earnings exceed ₹50,000 per financial year for general citizens. For senior citizens, the exemption limit has been increased to ₹1,00,000 per financial year. Let’s say, you earn an FD interest of ₹50,000. Here, the bank will deduct 10% TDS. This means that ₹5,000 would be deposited to the government. Consequently, when you report the interest income in ITR, you need to enter the whole interest earned of ₹50,000, and claim the TDS deducted by the bank (₹5,000) as a tax credit/TDS refund.
However, if your PAN is not updated with the bank, the TDS rate will increase to 20%. This deducted amount is then deposited with the Income Tax Department, and you can claim a refund while filing your ITR. Yet again, to do this, your total taxable income should be below the exemption limit.
TDS applies to all FDs across NBFCs and banks. However, it does not apply to the interest earned on savings accounts. Furthermore, if your total income is below the taxable limit, the bank cannot deduct TDS, provided that you submit Form 15G (for non-senior citizens) and Form 15H (for senior citizens) before the due date. Make sure you fill and submit these forms right at the beginning of each financial year.
In case TDS is still deducted, you can claim a refund while filing your ITR. Once again, your total taxable income must be below the exemption limit.
The TDS rates on FD interest vary based on the taxpayer category along with PAN requirement. Here's a table summarising the applicable current TDS rates on FD interest in 2025.
Category | TDS Rate (With PAN) | TDS Rate (Without PAN) |
Resident Individuals (earning below ₹40,000/₹50,000) limit | NIL | 20% |
Resident Individuals (earning above ₹40,000/₹50,000) limit | 10% | 20% |
Senior Citizens (above ₹50,000) | 10% | 20% |
NRI (Non-Resident Indian) (under Section 195 of the Income Tax Act) | 30% (+ additional surcharge, cess) | 30% (+ additional surcharge, cess) |
The exemption limit for TDS on FD interest is based on age and the type of depositor. For people below 60 years of age, TDS is deducted only if the total interest earned in a financial year exceeds ₹40,000. In case the interest remains within this limit, no TDS will be applied.
For senior citizens as discussed, the exemption limit is higher at ₹50,000. This further means that they can earn up to ₹50,000 in interest from FDs without any TDS deduction. This provision was introduced under Section 80TTB of the Income Tax Act to offer financial relief to retirees who solely rely on interest income.
It is important to note that the exemption limit applies per bank. Hence, if you have FDs in multiple banks, each bank will consider only the interest earned within that institution before applying TDS. However, within a single bank, the total interest from all FDs is added up to check if it crosses the exemption threshold.
Calculating TDS on FD interest is quite easy. Banks deduct TDS only when your total interest earnings exceed the specific exemption limit. Here's how it works:
1) Determine the Total Interest Earned
First things first, calculate the total interest if your FD across all deposited with the same bank in one financial year.
2) Check if it Exceeds the Exemption Limit
This is the most important stage. If your total interest turns up below ₹40,000 (₹50,000 for senior citizens), no TDS will be deducted. However, if it exceeds this limit, TDS will be applicable at a certain rate.
3) Apply the TDS Rate
Here, if you have a PAN linked with your FD account, 10% TDS will be deducted. However, if you do not have a valid PAN relating to the FD account, 20% TDS will be deducted.
For example, let's consider you have an FD that earns a solid ₹60,000 in interest in one year. Now, since ₹60,000 exceeds the ₹40,000 limit, TDS applied would be 10%. This makes it ₹6,000. Eventually, the net interest received would be, (₹60,000 - ₹6,000) = ₹54,000.
Note: In case you have FDs in multiple banks, each bank applies TDS separately (depending on the interest earned with them). However, while filing ITR, you must declare the total interest earned and claim a refund if excess is deducted.
In case you want to avoid TDS deductions on your FD interest, here’s what you can do legally:
1) Submit Form 15G/15H
These are self-declaration forms that will stop the bank from deducting TDS on FD interest. Nevertheless, note that both serve different purposes and are to be used under unique circumstances. In case your total income is below the taxable limit and you are below 60 years of age, you can submit 15G. The tax liability here would be considered NIL. On the other hand, if your annual income is below a certain threshold and you are more than 60 years old, you need to submit Form 15H. Super senior citizens (more than 80 years of age) are also required to submit Form 15H.
2) Go for Tax-Free Investment Options
This is an alternative. Instead of opting for FDs, try considering other tax-free alternatives like ELSS funds, PPF, or tax–free bonds. This can also offer better post-tax returns.
3) Spread Your FDs Across Multiple Banks
TDS will only be collected if the interest earned exceeds the limit per bank in a financial year. Hence, you can split your deposits across multiple banks to keep the interest earned below the threshold at each bank.
4) Choose the Right FD Tenure
If you plan quite carefully and strategically, you can select FD tenures in such a way that the interest income is spread across financial years. This reduces the chance of TDS deduction.
5) Invest in FDs under Different Family Members
This can be a smart move. You can open FDs in the name of your parents, spouse, or children; thereby keeping each person's interest below the TDS threshold.
For senior citizens in India, TDS on FD interest comes with special considerations. Under Section 80TTB of the Income Tax Act, individuals aged 60 years and above can claim a deduction of up to ₹50,000 on interest earned from savings accounts, fixed deposits, and post office deposits. This further means that if their total interest income from these sources stays within this limit, they won't have to pay any TDS on FD.
Additionally, senior citizens can submit Form 15H to their respective bank at the beginning of the financial year. This will help them avoid TDS deduction if their total income is below the taxable threshold. This is ₹3 lakh for individuals aged 60-79 and ₹5 lakh for those aged 80 and above (super senior citizens). This exemption helps them maximise their returns without worrying about tax deductions at the source.
If TDS has already been deducted on FD interest but the total income falls below your taxable limit, you can claim a refund while filing your ITR. The refund process is quite easy. Once the ITR is filed out and verified, the Income Tax Department assesses the tax liability and refunds any excess TDS that is deducted.
For a better and more accurate tax credit, you should make sure that your PAN is linked to your bank account. This is because TDS deductions are recorded in Form 26AS, which helps in tracking the amount that is deducted. In case you (as a taxpayer) qualify for an exemption but missed submitting Form 15G/15H, you can still claim a full refund while filing your returns.
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The threshold limit for TDS deduction on FD interest is ₹40,000 per financial year, provided that you are below 60 years of age. For senior citizens, this limit is ₹50,000 per financial year. In case your total FD interest earnings exceed this limit in a particular year, the bank is subject to deduct a TDS at 10% or 20%, as applicable.
You can avoid TDS deductions by submitting Forms 15G and 15H as per the criteria/as applicable. Additionally, you can try splitting or diversifying your FD investments across multiple banks to keep the interest earnings right below the threshold limit. Moreover, you can try investing in tax-saving FDs or other instruments where TDS is not applicable.
Yes. Senior citizens (those aged 60 and above) have a higher TDS exemption limit on FD interest. This is ₹50,000 per financial year under Section 194A of the Income Tax Act. Furthermore, senior citizens can claim a deduction up to ₹50,000 on interest income under Section 80TTB while filing their ITR.
To claim TDS exemption, you will have to submit Form 15G (if you are below 60 years of age with a total taxable income below the exemption limit). In case you are above 60 years old, you need to submit Form 15H, provided that your total taxable income is below the exemption limit. These forms are to be submitted to the bank right at the beginning of the financial year.
Each bank calculates TDS on the total interest earned from all the FDs held within that particular bank. However, if your combined FD interest across multiple banks exceeds the threshold limit, you may need to pay an additional tax while filing your ITR. To avoid any potential discrepancies, make sure you check your Form 26AS and AIS (Annual Information Statement) to ensure accurate tax reporting.
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