Bank FD News : In today’s financial landscape, there are numerous investment options available that offer high returns and promise safety. Despite this variety, many Indian investors, especially conservative ones, continue to prefer Fixed Deposits (FDs) over market-linked investment avenues. Fixed deposits are widely considered safe, stable, and predictable in terms of returns. However, many individuals, particularly young investors or women just beginning their financial journey, are unaware of how taxation works on FD interest. Specifically, they are unclear about when TDS (Tax Deducted at Source) is applicable and when it is not.
If you’re also unsure about when interest earned on your FD is taxable or exempt from TDS, this article will explain everything in a detailed and simplified manner.
Bank FD News : What is TDS?
TDS (Tax Deducted at Source) is a tax collection mechanism used by the Government of India. It ensures that tax is collected at the very point where income is generated. This applies to various sources of income, such as salary, rent, professional fees, commission, and also interest earned from fixed deposits.
When you earn income from these sources, the paying entity (for example, your employer or bank) deducts a certain percentage of tax at the time of payment and deposits it with the government on your behalf. You can later file your Income Tax Return (ITR) to claim a refund if the deducted tax exceeds your actual tax liability.
Bank FD News : Interest Earned on Fixed Deposits is Taxable
When you invest your money in a fixed deposit, the bank pays you interest on your deposit at a fixed rate. This interest is fully taxable, as it falls under the head “Income from Other Sources” in the Income Tax Act.
Hence, the bank deducts TDS on the interest income you earn from your FD. The deducted amount is deposited with the Income Tax Department and is reflected in your Form 26AS and Annual Information Statement (AIS).
Bank FD News : How is TDS on Fixed Deposit Interest Calculated?
TDS on FD interest is calculated based on:
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Amount of Interest Earned
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Duration of the FD
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Whether the depositor has submitted their PAN
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The depositor’s residential status (Resident Indian or NRI)
If you are a resident individual and the total interest earned from all your FDs in a financial year exceeds a specified threshold, the bank will deduct TDS. The rate of TDS is generally 10% if PAN is provided. However, if you do not provide your PAN, the TDS rate can shoot up to 20%.
Bank FD News : When is TDS Not Deducted on FD Interest?
While FD interest is taxable, there are certain conditions where TDS is not deducted. These include:
1. If Interest Earned is Less Than ₹40,000 in a Financial Year
For regular individual depositors (below 60 years of age), TDS is not deducted if the total interest earned from all FDs in a financial year is less than ₹40,000. This limit applies across all branches of a particular bank.
Example: If your FD interest from Bank A in one financial year is ₹38,000, then no TDS will be deducted.
2. For Senior Citizens (60 Years and Above): Interest Below ₹50,000
For senior citizens, the TDS exemption limit is ₹50,000 per financial year. This means if a senior citizen earns up to ₹50,000 as interest from fixed deposits, no TDS will be deducted.
Note: This exemption is under Section 80TTB of the Income Tax Act.
3. If Total Income is Below Taxable Limit (₹2.5 Lakhs per annum)
If your total income, including interest income, is below the basic exemption limit (currently ₹2.5 lakhs for individuals below 60), you are not liable to pay any income tax. In such cases, even if your FD interest crosses ₹40,000, you can avoid TDS by submitting Form 15G to the bank.
For senior citizens (above 60), the exemption limit is ₹3 lakhs, and for super senior citizens (above 80), it is ₹5 lakhs. In these cases, Form 15H must be submitted to avoid TDS.
What Happens if TDS is Deducted Despite Eligibility for Exemption?
If your bank deducts TDS, even though your income is below the taxable limit or interest is below the threshold, you can claim a refund when you file your income tax return.
For instance, if your annual income is ₹2.4 lakhs and the bank still deducts ₹4,000 as TDS, you can file your ITR and claim the entire ₹4,000 as a refund. It is important to file your return on time to get your refund credited quickly.
What If You Don’t Have a PAN?
This is a crucial point often missed by first-time investors.
If you do not provide your PAN to the bank, the TDS rate will not be the standard 10%. Instead, the bank will deduct TDS at 20%, regardless of the amount of interest earned. Therefore, make sure your bank has your valid PAN details to avoid excess TDS deduction.
Summary: TDS on FD Interest – At a Glance
| Criteria | TDS Deducted? |
|---|---|
| Interest ≤ ₹40,000 (Regular depositor) | No |
| Interest ≤ ₹50,000 (Senior citizens) | No |
| PAN Not Provided | 20% TDS |
| PAN Provided, Interest > ₹40,000 (Regular) / ₹50,000 (Senior) | 10% TDS |
| Income below taxable limit + Form 15G/15H submitted | No |
| Interest exceeds exemption limits | Yes (TDS applicable) |
Final Thoughts
While fixed deposits remain one of the most popular and safest investment instruments in India, it’s important to understand how the taxation on FD interest works. Many individuals are unaware of TDS rules and end up facing unnecessary deductions. By understanding when TDS is applicable and taking timely action (like submitting Form 15G/15H), you can ensure your interest income remains tax-efficient.
Always keep track of the interest you are earning across different banks and branches, and file your income tax return to claim refunds, if eligible. Also, never forget to update your PAN with the bank to avoid paying higher TDS.
Being aware of these small but important details can go a long way in maximizing your returns and managing your finances smartly.
