Key takeaways
- Yes — FD interest is fully taxable, added to your total income and taxed at your income slab rate, not at a flat rate
- Banks deduct TDS at 10% if your total FD interest across all deposits with that bank exceeds ₹50,000 a year (₹1,00,000 for senior citizens), effective from FY 2025-26
- TDS is not the final tax — if your slab rate is higher than 10%, you owe the difference when filing your return
- If your total income is below the taxable limit, you can avoid TDS by submitting Form 15G (below 60) or Form 15H (60 and above)
- Interest is taxed on an accrual basis every year, even for a multi-year FD where you haven't withdrawn any interest yet
Quick answer
Yes, FD interest is fully taxable in India. It's added to your total income under "Income from Other Sources" and taxed at your applicable income tax slab rate — there's no special flat rate or exemption for FD interest itself. Banks deduct TDS at 10% once your annual interest crosses ₹50,000 (₹1,00,000 for senior citizens, effective FY 2025-26), but that's just a prepayment, not your final tax liability.
How FD interest is actually taxed
Unlike some capital gains, which get special lower tax rates, FD interest is taxed just like your salary or business income — it's added on top of your other income and taxed at whichever slab rate that total falls into.
If you're in the 30% tax slab, your FD interest is taxed at 30% — not at the 10% TDS rate the bank deducted. The bank's 10% deduction is only a prepayment toward your total tax; you settle the remaining difference when you file your return.
Try the FD Calculator
Use the FD Calculator to see your maturity value, then estimate your tax liability based on your income slab.
TDS on FD interest: the rules
| Category | TDS threshold (per bank, per year) | TDS rate |
|---|---|---|
| General (under 60) | ₹50,000 | 10% (with PAN) |
| Senior citizens (60+) | ₹1,00,000 | 10% (with PAN) |
| No PAN provided | Same thresholds | 20% |
The threshold is per bank, not per account. If you hold FDs with interest of ₹30,000 at Bank A and ₹30,000 at Bank B, neither crosses the ₹50,000 threshold individually, so no TDS is deducted by either bank — but you're still legally required to declare and pay tax on the full ₹60,000 combined interest when filing your return.
Taxed every year, even if you don't withdraw
A common misconception is that FD interest is only taxable when the FD matures and you actually receive the money. That's not how it works.
FD interest is taxed on an accrual basis — meaning it's added to your taxable income every financial year as it accrues, regardless of whether you've withdrawn it or the FD has matured yet. For a 5-year FD, this means declaring a portion of interest income each year for 5 years, not one lump sum in the final year.
How to legally avoid TDS (not tax)
If your total annual income is below the basic taxable limit, you're not liable to pay tax at all — and you can avoid TDS being deducted unnecessarily by submitting a declaration form to your bank.
- Form 15G: for individuals below 60 years whose total income is below the taxable threshold.
- Form 15H: for senior citizens (60+), with a slightly more relaxed condition since their basic exemption limit is higher.
Important: these forms only prevent TDS deduction — they don't exempt the interest from tax. If your income is actually above the taxable limit and you submit these forms incorrectly, you'll still owe the tax when filing, and providing a false declaration can attract penalties.
A worked example
Vikram earns ₹9 lakh in salary and also has ₹60,000 in FD interest income for the year, all from one bank.
Since his interest exceeds ₹50,000, the bank deducts TDS at 10%: ₹6,000.
At filing time, his total income (₹9,60,000) puts him in a slab where his effective tax rate on this portion of income is higher than 10%. He calculates his total tax liability on the full ₹9.6 lakh, then subtracts the ₹6,000 TDS already deducted — paying the balance as self-assessment tax, or claiming a refund if he's overpaid elsewhere.
Sunita, 65, has no salary income and relies on ₹15 lakh in FDs, all held with a single bank, earning roughly ₹1,20,000 in interest a year. Her total annual income, including this interest, comes to well under the basic exemption limit for senior citizens.
Since her interest crosses the ₹1,00,000 senior citizen TDS threshold, the bank would deduct TDS by default. To avoid this, she submits Form 15H at the start of the financial year, declaring that her total income doesn't make her liable to pay tax. As a result, the bank doesn't deduct any TDS on her interest.
Without submitting Form 15H, the bank would have deducted TDS by default once her interest crossed the threshold — money she'd have had to claim back only after filing a return, even though she owed no tax at all.
How FD tax compares to other savings options
| Instrument | Tax treatment |
|---|---|
| Fixed Deposit | Fully taxable at slab rate, TDS applies above threshold |
| PPF | Interest fully tax-exempt (EEE status) |
| Tax-saving FD (5-year lock-in) | Principal deductible under 80C, but interest still taxable |
| ELSS mutual funds | Principal deductible under 80C; gains taxed as LTCG at 12.5% above ₹1.25 lakh |
This is one reason FDs, while safe and predictable, are often less tax-efficient than instruments like PPF or ELSS for investors in higher tax brackets.
Frequently asked questions
Is FD interest taxable even if TDS wasn't deducted?
Yes. TDS not being deducted (because interest stayed below the threshold, or you submitted Form 15G/15H) doesn't mean the interest is tax-free — if your total income is above the taxable limit, you're still required to declare and pay tax on it when filing your return.
Can I claim a refund if TDS deducted is more than my actual tax liability?
Yes. If your total tax liability, calculated at your actual slab rate, is lower than the TDS already deducted by the bank, you can claim the difference as a refund when filing your income tax return.
Is tax-saving FD interest also taxable?
Yes. A 5-year tax-saving FD lets you deduct the principal amount under Section 80C, but the interest earned on it is still fully taxable at your slab rate, just like a regular FD.
Do senior citizens get any special exemption on FD interest?
Senior citizens get a higher TDS threshold (₹1,00,000 vs ₹50,000) and can claim a deduction of up to ₹50,000 on interest income (including FD interest) under Section 80TTB — but only under the old tax regime, and the interest itself is still taxable beyond that deduction.
Do I need to declare FD interest even if my total income is below the taxable limit?
You're required to include it while computing your total income when filing a return, but if your total income (including this interest) stays below the basic exemption limit, you won't owe any tax on it. Filing a return may still be worthwhile in this case to formally claim any TDS refund.
Is interest on a recurring deposit (RD) taxed the same way as FD interest?
Yes — RD interest follows the same tax treatment as FD interest: fully taxable at your slab rate, with the same TDS thresholds (₹50,000 general, ₹1,00,000 for senior citizens) applying per bank per year.
What if I have FDs in multiple banks — does each bank apply the ₹50,000 threshold separately?
Yes, the TDS threshold is applied per bank, not across your total FD holdings. This means you could have interest income exceeding ₹50,000 in total across several banks without any single bank deducting TDS — but you're still legally required to declare and pay tax on the combined amount.
Can I claim a deduction on FD interest under Section 80TTA like savings account interest?
No — Section 80TTA (deduction up to ₹10,000) applies only to savings account interest, not FD or RD interest. FD interest for non-senior citizens has no equivalent deduction under the old regime; only senior citizens get relief for FD interest, via Section 80TTB.
How to declare FD interest in your income tax return
| Step | What to do |
|---|---|
| 1 | Collect the interest certificate or Form 16A (TDS certificate) from each bank where you hold an FD |
| 2 | Add up total interest earned across all FDs during the financial year, on an accrual basis |
| 3 | Report this total under "Income from Other Sources" in your ITR |
| 4 | Cross-check the TDS already deducted against your Form 26AS / AIS (Annual Information Statement) to ensure it matches what banks have reported |
| 5 | Calculate your total tax liability including this interest, and settle any balance due or claim a refund for excess TDS |
Your Form 26AS/AIS will show interest even if you didn't receive a physical certificate. Banks report interest income to the tax department directly, so it's worth checking these statements even if you think you've tracked every FD manually — a missed FD is a common reason for a mismatch notice from the tax department.
Common mistakes with FD taxation
- Assuming interest is only taxable in the year the FD matures: as covered above, interest is taxed on an accrual basis every year, not just when you eventually withdraw the money.
- Submitting Form 15G/15H incorrectly when actually liable to pay tax: this doesn't exempt the income from tax — it only avoids TDS. If your total income is above the taxable limit, you'd still owe tax at filing time, and an incorrect declaration can also attract scrutiny.
- Forgetting to add up interest across multiple banks: since the TDS threshold applies per bank, someone with FDs at three different banks might have no TDS deducted anywhere, but still owe tax on the combined interest — easy to overlook without checking Form 26AS/AIS.
- Not accounting for FD interest when estimating advance tax liability: if your total tax liability (including FD interest) exceeds ₹10,000 for the year, advance tax rules may apply, and a shortfall can attract interest penalties under Sections 234B/234C.
