TDS On FD Interest Explained: Rules, Rates, And How To Avoid Excess Tax
Fixed deposits (FDs) have this reassuring ring to them: you fix your money with a bank, and you know what you will get back. This is why in India, FDs remain a bedrock for conservative savers and retirees, with the share of fixed deposits in total bank deposits reaching about 62% in September 20251.
Yet what many investors do not realise until it is tax time is that the returns you see quoted are not necessarily the returns you keep after tax.
Firstly, the returns on FDs have slowed as the RBI eased monetary policy in 2025, prompting banks to trim FD interest rates. Secondly, while FDs offer 6-8% returns, inflation rates reduce the purchasing power of that money2. Then comes the FD tax rules. FD interest income tax is charged according to the applicable tax rate. Additionally, bank FD tax deduction through TDS on FD India is applied if your interest crosses the prescribed limits in a financial year.
These FD interest TDS rules, including provisions such as Form 15G and Form 15H for FDs, shape the FD returns you keep, which is what we shall discuss further in this blog.
What Is TDS On Fixed Deposit Interest?
TDS on interest on fixed deposit is the tax deducted by the banks before crediting the interest to your account. Under Section 194A of the Income-tax Act, banks and financial institutions must deduct TDS if the total interest earned during a financial year crosses the prescribed limit3. This deduction happens automatically, even though the interest is still taxed as part of your total income while filing returns.
Current TDS Rules On FD Interest
The Union Budget 2025 revised the TDS rules and income tax on FD interest4. The banks deduct TDS only if the total interest earned from fixed deposits, recurring deposits or similar instruments in a financial year exceeds the threshold limit set for your category of taxpayer, effective from 1 April 2025.
| TDS rate, PAN provided | 10%5 |
| TDS rate, if PAN is not provided | 20%6 |
1. Threshold limits
The new TDS thresholds on interest income from FDs (and similar deposits) starting FY 2025–26 are:7
| For regular citizens | 10% TDS applies if total interest exceeds INR 50,000 in a financial year |
| For senior citizens (60+ years old) | 10% TDS applies only if total interest exceeds INR 1,00,000 in a financial year |
2. Senior citizen rules
The senior citizen FD tax deducted at source on FD interest was doubled from INR 50,000 to INR 1,00,000 per financial year, in Budget 2025, providing significant relief to retirees.
Here is an example showing interest earned vs TDS deducted for regular citizens.
| Annual Interest earned | TDS deducted (%) | TDS threshold | Net interest Credited |
| 40,000 (Regular) | – | 50,000 | 40,000 |
| 55,000 (Regular) | 5,500 (10%) | 50,000 | 49,500 |
| 1,00,000 (Senior) | – | 1,00,000 | 1,00,000 |
| 1,20,000 (Senior) | 12,000 (10%) | 1,00,000 | 1,08,000 |
Form 15G And Form 15H Explained
Form 15G and Form 15H are self-declaration tools that help investors in avoiding bank FD tax deduction when their overall interest income tax liability for the year is nil7. Under the current FD interest TDS rules in India, banks deduct tax once interest crosses INR 50,000 (regular citizen) and INR 1 lakh (senior citizens), even if your final tax payable is zero.
Citizens below the age of 60 file the Form 15G, while Form 15H is meant for senior citizen FD tax relief, available to residents aged 60 and above with zero tax liability. These forms should be filed quarterly.
How TDS Impacts Actual FD Returns
1. Breaks the compounding cycle: In FDs, tax gets deducted each year, so that portion stops earning interest, and shrinks the maturity value.
2. Erodes real returns: While the FD rate of 6-8% looks attractive, the post-TDS yield can be meaningfully lower8.
3. Kicks in beyond set limits: TDS applies once annual interest crosses INR 50,000 for regular investors and INR 1 lakh for senior citizens from FY 2025–269.
4. Heavier hit without PAN: If you skip the PAN submission part, TDS jumps to flat 20%, and cuts more of your FD earnings10.
Smarter Ways To Manage Tax On Interest Income
Tax and TDS combined can significantly reduce your overall FD returns, so here are some ways to manage it!
- Staggering investments
This helps keep your annual FD interest within TDS limits without crossing them in one go. By spreading deposits across different tenures or financial years, you gain better control over bank FD tax deduction and improve post-tax cash flow without changing the risk profile.
This also reduces overdependence on FDs for returns. While exploring alternatives such as bonds through platforms like Grip, which offer clear yield visibility and defined cash flows, you can balance your interest income tax while improving overall return efficiency.
Conclusion
Fixed deposits still play an important role in Indian portfolios, especially for capital safety and predictable income. But focusing only on the headline FD interest rate can be misleading. After accounting for inflation, FD tax rules, and TDS on FD interest, the real return is often much lower than expected.
Understanding how FD interest income tax works, planning around TDS limits, and using tools like Form 15G or Form 15H can help reduce unnecessary tax leakage. At the same time, investors looking to improve post tax returns may explore diversification beyond traditional bank FDs, including tax efficient debt instruments and high quality corporate bonds available through platforms like Grip Invest.
The key is not to abandon FDs, but to use them more strategically—aligned with tax planning, liquidity needs, and long term financial goals.
FAQs On FD Returns, Tax And TDS In India
1. Is FD interest fully taxable in India?
Yes. FD interest is taxed as “Income from Other Sources” and added to your total taxable income based on your slab.
2. Can I avoid TDS on FD interest?
You can submit Form 15G (non senior citizens) or Form 15H (senior citizens) if your total income is below the taxable limit.
3. Are senior citizen FD tax rules different?
Yes. Senior citizens get a higher TDS threshold and can claim additional deductions under Section 80TTB on interest income.
4. Are there better post tax alternatives to bank FDs?
Depending on risk appetite, investors may consider options like corporate bonds, debt funds, or market linked instruments, which can sometimes offer better post tax outcomes than traditional FDs.
References:
1. Economic times, accessed from: https://economictimes.indiatimes.com/markets/stocks/news/depositors-locking-in-high-rates-push-up-fd-share/articleshow/125755604.cms?from=mdr
2. Motilal Oswal, accessed from: https://www.motilaloswal.com/news/economy-_-outlook/108721
3. Income tax India, accessed from: https://incometaxindia.gov.in/Tutorials/22.%20TDS%20under%20sec%20194A%20etc.pdf
4. Income tax India, accessed from: https://incometaxindia.gov.in/charts%20%20tables/tds%20rates.htm
5. Business standard, accessed from: https://www.business-standard.com/budget/news/fixed-depositors-your-tds-limit-hiked-to-rs-50-000-rs-1-lakh-for-seniors-125020101255_1.html?utm_source=chatgpt.com
6. Business standard, accessed from: https://www.business-standard.com/budget/news/fixed-depositors-your-tds-limit-hiked-to-rs-50-000-rs-1-lakh-for-seniors-125020101255_1.html?utm_source=chatgpt.com
7. Business standard, accessed from: https://www.business-standard.com/budget/news/fixed-depositors-your-tds-limit-hiked-to-rs-50-000-rs-1-lakh-for-seniors-125020101255_1.html?utm
8. Income tax India, accessed from: https://incometaxindia.gov.in/Documents/Tax-Calendar/Due-date-to-file-Form-15G-or-15H.htm
9. Motilal Oswal, accessed from: https://www.motilaloswal.com/news/economy-_-outlook/108721
10. Business standard, accessed from: https://www.business-standard.com/budget/news/fixed-depositors-your-tds-limit-hiked-to-rs-50-000-rs-1-lakh-for-seniors-125020101255_1.html?utm_source=chatgpt.com
11. Business standard, accessed from: https://www.business-standard.com/budget/news/fixed-depositors-your-tds-limit-hiked-to-rs-50-000-rs-1-lakh-for-seniors-125020101255_1.html?utm_source=chatgpt.com
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