FD Tax Rules India 2026

Fixed Deposits are still among the most common savings schemes used in India; however, many of the depositors have some misconceptions about the taxation of Fixed Deposit interest. Many think that since the principal investment in the fixed deposit is covered under section 80C, the entire fixed deposit is tax exempt, which is not true. FD interest is fully taxable income in India. Understanding the current FD tax rules India, how TDS is applied, what deductions are available, and what FD tax mistakes to avoid can prevent unnecessary tax notices, penalties, and loss of income. This article covers everything you need to know about how FD tax rules India.

How is FD Interest Taxed in India?

A misconception that some Indian taxpayers have regarding FDs is that since the principal investment made through an FD may fall under Section 80C, the interest earned from such FD is also tax-free. This is not true.

FD interest is treated as “Income from other sources,” which is included in the total income earned in a financial year by the investor and subject to income tax based on the relevant income tax slab.

For example, if an investor falls in the 30% tax slab and earns Rs. 80,000 in FD interest during the year, the entire Rs. 80,000 is added to their taxable income and taxed at 30% (plus applicable cess), regardless of whether TDS has been deducted by the bank.

How FD interest is taxed in India, key points:

• FD interest is taxable every year as it accrues, not just when the FD matures.
• It must be reported under “Income from Other Sources” in your ITR.
• TDS is only an advance tax credit and does not remove the requirement to disclose the full interest income.
• FD interest is not exempt from tax merely because TDS was not deducted by the bank.

What are the Current TDS Rules on FD Interest?

Tax deducted at source for fixed deposit interest in India comes under section 194A of the Income tax act of 1961. TDS shall be deducted from interest income if it exceeds the prescribed limit during the financial year.

TDS Threshold Limits for FY 2025-26 (April 1, 2025 to March 31, 2026):

These limits have been increased with effect from April 1, 2025. The general limit for FY 2024-25 was Rs. 40,000, while that of the senior citizens was Rs. 50,000.

Once the threshold is crossed, TDS is deducted on the entire interest amount and not just the excess portion. This is a detail many investors overlook when planning their FD deposits across banks.

For banks using Core Banking Solutions, the Rs. 50,000 or Rs. 1,00,000 limit applies cumulatively across all branches of that bank. Some cooperative banks and smaller institutions may calculate the limit independently per branch.

What is the TDS Rate on FD Interest in India?

In case the total FD interest income is higher than these limits in a financial year, banks/financial institutions will deduct tax at source @10% (or 20% if PAN is not provided).

The TDS deduction from the bank is shown on your Form 26AS and Annual Information Statement. This TDS deduction can either be used for offsetting your total tax liability when filing ITR or taken back as refund if there was an excess tax deduction.

How to Avoid TDS on FD Interest?

Eligible investors can avoid TDS being deducted from FD interest by filing a self-declaration form with the bank. The appropriate form to be filed will depend on age as well as the financial year:

FY 2025-26 (April 1, 2025 to March 31, 2026):

• Form 15G: Individuals below 60 years having total income less than basic exemption limit
• Form 15H: Senior citizens 60 years and above, with zero estimated tax for the year

Important update for FY 2026-27 (from April 1, 2026): 

From 1st April 2026 onwards, the Income Tax Act, 2025 now makes it mandatory to file form 121 in place of Form 15G & 15H. In case of filing for financial years up to and including FY 2025-26, one should file Form 15G/15H.

Important requirements for filing Form 15G (Financial Year 2025-26):

• You should be a resident individual/HUF
• Your total income should be less than the basic exemption limit
• Your interest income that you are declaring should not be more than your total income

Both the forms need to be filed at the start of every financial year. It is an annual requirement. Penalty is imposed for filing of incorrect information.

What is Section 80C and Section 80TTB for FDs?

Section 80C and Tax-Saving FDs

Deductions can be claimed on the principal amount invested (up to Rs 1.5 lakh). But the interest earned is taxable according to your income tax slab.

Tax-saving FDs have a 5-year lock-in period. Premature withdrawal is not permitted. The deduction under Section 80C is available only under the old tax regime and cannot be claimed under the new tax regime.

Section 80TTB for Senior Citizens

Senior citizens can claim a deduction of up to Rs. 50,000 per year on interest income from deposits under Section 80TTB. This covers FD interest, recurring deposit interest, and savings account interest from banks, cooperative banks, and post offices. This deduction is available under the old tax regime.

What are the FD Tax Mistakes to Avoid?

Understanding FD tax mistakes to avoid can save you from tax notices, interest on underpaid tax, and unexpected tax demands:

1. Not Reporting FD Interest in ITR 

FD interest must be reported under “Income from Other Sources”. Check AIS and Form 26AS, claim eligible deductions and adjust TDS to avoid notices. Failing to report interest because TDS was not deducted is a common error that can trigger income tax notices.

2. Assuming Section 80C Makes FD Interest Tax-Free 

This is one of the most widespread FD tax mistakes to avoid. The Section 80C deduction applies only to the principal. Interest earned on any FD, including a tax-saving FD, remains fully taxable.

3. Not Linking PAN to FD Accounts 

Without a linked PAN, TDS is deducted at 20% instead of 10%. Ensuring your PAN is registered with the bank before your FD is opened or renewed prevents unnecessary excess deduction.

4. Forgetting to Submit Form 15G or 15H Each Year 

Both forms are valid for one financial year only. Investors whose income is below the taxable limit must resubmit at the start of each year. From FY 2026-27, Form 121 replaces both forms.

5. Not Declaring Interest on Joint FDs Correctly 

In the case of FDs held jointly, income from the interest is taxable in the hands of the primary holder and not split equally. The interest income earned from the FD in the name of a non-income earning spouse/child will be treated as clubbed income of the depositor.

6. Spreading FDs Across Branches to Avoid TDS 

For banks using Core Banking Solutions, the TDS threshold applies cumulatively across all branches of the same bank. Splitting deposits across branches of the same bank does not help avoid TDS. Splitting across different banks, however, may be considered within the legal framework.

7. Reporting FD Interest Only at Maturity 

FD interest accrues annually and must be reported every year in the ITR, even for cumulative FDs where the interest is paid only at maturity. Reporting it only in the year of maturity leads to underreporting in earlier years.

Conclusion

An insight into the FD tax rules India is very important for each and every investor who makes fixed deposits, either on a short-term basis or as a part of their long-term savings plan. The taxation of interest earned from fixed deposits in India becomes quite easy after you understand the basics of this aspect: interest income is fully taxable in India; tax is deducted through Section 194A by the banks, and the Section 80C deduction can only be claimed on the principal amount of a tax-saving FD. All FD tax mistakes to avoid from not declaring annual interest income to failure to submit Form 15G or Form 121 are easily avoidable if you know how things work here. It is just about maintaining simple habits when it comes to FD tax rules India.

Disclaimer: The information in this article is for educational and informational purposes only and should not be considered tax or financial advice.