Tax on FD and Savings Account Interest in India

Fixed deposits remain the most trusted savings instrument in Indian households. They are simple, safe, and predictable. What is far less understood is how the interest they generate is taxed — and the gap between what people assume and what the law says causes real problems every filing season. The single most common misconception is that if the bank did not deduct TDS, the interest is tax-free. It is not. This article lays out exactly how interest from fixed deposits, recurring deposits and savings accounts is taxed in India for FY 2025-26, what TDS does and does not cover, and how the small but useful deductions under Sections 80TTA and 80TTB work.

To project what a recurring deposit will actually earn before tax, the RD calculator shows the maturity value and total interest.

Interest Is Taxed at Your Slab Rate

Start with the core rule: interest from fixed deposits, recurring deposits, and savings accounts is treated as "Income from Other Sources" and taxed at your normal income tax slab rate. There is no special concessional rate for interest, unlike capital gains on shares which get favourable treatment. If you are in the 30% bracket, your FD interest is effectively taxed at 30% plus cess.

This matters because FDs are often marketed on their headline interest rate. A deposit advertising 7.5% return delivers, to someone in the 30% bracket, a post-tax return closer to 5.2%. Understanding this is essential for comparing FDs against other options.

There is one important distinction:

• Savings account interest gets a small deduction (80TTA or 80TTB, covered below).
• Fixed and recurring deposit interest gets no general deduction for those below 60. Seniors can shelter it under 80TTB.

TDS on Fixed Deposit Interest

Banks are required to deduct tax at source on the interest they pay you, but only once it crosses a threshold. For FY 2025-26:

Depositor Type	TDS Threshold (per bank, per year)	TDS Rate (with PAN)	TDS Rate (no PAN)
Individual below 60	Interest above ₹40,000	10%	20%
Senior citizen (60+)	Interest above ₹50,000	10%	20%

A few points that trip people up:

The threshold is per bank, not per FD. All your deposits within one bank are aggregated. If you hold five FDs in the same bank, the bank totals the interest across them. Spreading deposits across different banks can keep each below the threshold, but this does not reduce your tax — only the TDS.

No PAN means 20% TDS. If your PAN is not updated with the bank, TDS doubles to 20%, and you cannot claim it back easily without linking the PAN. Always ensure your PAN is on record.

Recurring deposits are covered too. RD interest above the same threshold attracts the same 10% TDS.

TDS is not deducted from savings account interest at all — regardless of how high it is. Banks do not deduct TDS on savings interest, but it remains taxable and you must self-declare it.

TDS Is Not Your Final Tax

This is the heart of the confusion. TDS at 10% is only an advance collection. It is not the complete tax, and it is not a flat final rate.

Consider someone in the 30% bracket with ₹2,00,000 of FD interest. The bank deducts 10% TDS = ₹20,000. But their actual tax on this interest is 30% = ₹60,000 plus cess. They must pay the remaining ₹40,000-plus themselves, either as advance tax during the year or as self-assessment tax at filing. If their other income pushes them into needing advance tax, the FD interest can trigger that obligation — see our guide on advance tax when you have salary plus side income.

Conversely, someone whose total income is below the taxable limit may have had TDS deducted unnecessarily. They claim it back as a refund by filing a return — or prevent it in the first place using Form 15G/15H, explained in our Form 15G and 15H guide.

The takeaway: always reconcile the interest shown in your AIS against your own records, declare the full amount, and treat TDS only as a credit against your final liability.

Accrual vs Receipt: When the Interest Is Taxed

A cumulative FD pays all its interest at maturity — say a 5-year deposit that returns interest only at the end. Does the tax fall entirely in the maturity year, or each year as interest accrues?

The standard, and the method banks follow when reporting to the tax department, is the accrual basis: the interest is taxable in the year it accrues, even though you have not received it in hand. Banks report the year-by-year accrued interest in your AIS and deduct TDS annually. So you should declare the accrued interest each year and pay tax on it.

This is actually to your benefit. Spreading the interest across five years usually keeps you in a lower slab than receiving five years' worth in a single maturity year, which could push you into a higher bracket. You may choose the receipt basis if you apply it consistently, but accrual is simpler and matches the bank's reporting, so most people stick with it.

Section 80TTA and 80TTB: The Deductions

Two sections offer relief on interest income — but only under the old tax regime. Neither is available in the new regime.

Section 80TTA — for individuals below 60: A deduction of up to ₹10,000 per year on interest from savings accounts only (bank, co-operative bank, or post office). FD and RD interest does not qualify. If your savings interest is ₹14,000, you deduct ₹10,000 and pay tax on ₹4,000.

Section 80TTB — for senior citizens (60 and above): A far more generous deduction of up to ₹50,000 per year on all interest income — savings accounts, fixed deposits, and recurring deposits combined. A senior citizen with ₹45,000 of total interest pays no tax on it under 80TTB. This is a significant relief for retirees living on deposit income.

A senior citizen claims 80TTB, not 80TTA — you cannot use both. Here is how they compare:

Feature	Section 80TTA	Section 80TTB
Who	Individuals below 60 (and HUFs)	Senior citizens (60+)
Maximum deduction	₹10,000	₹50,000
Interest covered	Savings account only	Savings + FD + RD
Available in new regime	No	No

A Worked Example: FD Interest for a Senior Citizen

Let us take Mrs Iyer, a 67-year-old retiree in Chennai. Her income for FY 2025-26 under the old regime:

• Pension: ₹3,60,000
• FD interest: ₹3,20,000 (across deposits in one bank)
• Savings account interest: ₹12,000

Step 1 — Gross income: ₹3,60,000 + ₹3,20,000 + ₹12,000 = ₹6,92,000.

Step 2 — Deductions:

• Standard deduction on pension: ₹50,000
• Section 80TTB (covers FD + savings interest, capped at ₹50,000): ₹50,000

Total deductions = ₹1,00,000. Taxable income = ₹6,92,000 − ₹1,00,000 = ₹5,92,000.

Step 3 — Tax (old regime, senior citizen basic exemption ₹3,00,000):

• Up to ₹3,00,000: Nil
• ₹3,00,000–5,00,000 at 5%: ₹10,000
• ₹5,00,000–5,92,000 at 20%: ₹18,400
• Total: ₹28,400 + 4% cess = ₹29,536

Step 4 — TDS already deducted: Her bank deducted 10% TDS on FD interest above ₹50,000 — roughly ₹32,000 on ₹3,20,000. Since her actual tax is ₹29,536, she is due a small refund of around ₹2,500 after filing.

This shows how 80TTB shelters ₹50,000 of interest and how TDS gets reconciled at filing. Note that if Mrs Iyer's total income had stayed below the basic exemption limit, she could have submitted Form 15H to stop the TDS entirely. You can model your own liability with the income tax calculator and check deducted amounts with the TDS calculator.

Other Deposits: Post Office, Co-operative Banks and Company Deposits

The slab-rate treatment is not limited to bank FDs. The same principle — fully taxable at your slab rate — applies across most interest-bearing instruments, though the TDS rules vary:

Post office deposits and schemes: Interest from post office time deposits, the National Savings Certificate (NSC), and the Senior Citizens' Savings Scheme is taxable at slab rate. NSC interest is unusual in that the annual accrued interest (other than the final year) is deemed reinvested and qualifies for 80C — but it is still taxable each year as it accrues. The Senior Citizens' Savings Scheme attracts TDS like a bank deposit once interest crosses the senior threshold.

Co-operative bank deposits: Interest from co-operative banks is taxable at slab rate, and these banks deduct TDS on the same basis as commercial banks. Importantly, savings interest from a co-operative bank also qualifies for the 80TTA deduction for those below 60.

Company fixed deposits and bonds: Interest from corporate FDs and bonds is fully taxable at slab rate. Companies deduct TDS at 10% on such interest above ₹5,000 in a year — a much lower threshold than the ₹40,000 for banks. So a small corporate deposit can attract TDS where an equivalent bank deposit would not.

Tax-free instruments are the exception: A few instruments — PPF interest, EPF interest within limits, and interest on certain tax-free bonds — are genuinely exempt. But ordinary FDs, RDs, NSC, and company deposits are not. Do not assume any deposit is tax-free unless it specifically carries an exemption.

How TDS Shows Up: AIS and Form 26AS

Every rupee of TDS deducted on your interest, and the interest amount itself, is reported by banks to the tax department and appears in two places you should check before filing:

Form 26AS shows the TDS credited against your PAN — the tax the bank has deducted and deposited. You claim this as a credit in your return, so it must match what you report.

The Annual Information Statement (AIS) is broader: it shows the interest income reported by each bank, not just the TDS. This is how the department knows your total interest even on accounts where no TDS was deducted.

The practical workflow is to pull both statements, total the interest the department already knows about, and make sure your return reports at least that much. A mismatch — where your AIS shows ₹2 lakh of interest but your return declares ₹1.2 lakh — is one of the most common triggers for an automated query. Our Form 26AS and AIS guide explains how to read and reconcile both, and our Form 16 explained covers how salary TDS fits alongside.

Old Regime vs New Regime for Interest Income

Because 80TTA and 80TTB exist only in the old regime, taxpayers with large interest income and few other deductions face a genuine trade-off. A senior citizen with substantial FD interest may find the old regime worthwhile purely to claim the ₹50,000 under 80TTB. Someone below 60 with mostly FD interest gets no such shelter and may find the new regime's lower slab rates more attractive. Run both before deciding — our old vs new tax regime guide explains the comparison, and the broader picture is covered in tax planning in India.

Common Mistakes

Believing no TDS means no tax. The most damaging myth. Interest below the TDS threshold, or where Form 15G/15H was filed, is still fully taxable. Your AIS shows every rupee of interest reported by banks, and the tax department cross-checks it against your return. Omitting it invites a notice.

Splitting FDs across banks to dodge tax. Spreading deposits keeps individual TDS below the threshold, but the total interest remains fully taxable. You may avoid TDS, but you still owe the tax — and you now have to track it yourself across multiple banks, which is more error-prone.

Claiming 80TTA on FD interest. A frequent error. Section 80TTA covers savings account interest only. Fixed deposit interest does not qualify for anyone below 60. Only senior citizens, through 80TTB, can shelter FD interest.

Forgetting to add interest in the new regime. Some taxpayers in the new regime assume that since they cannot claim 80TTA/80TTB, interest somehow does not need reporting. It does — the income is fully taxable; only the deduction is unavailable.

Ignoring accrued interest on cumulative FDs. If you wait until maturity to report a five-year cumulative FD, the lump sum can push you into a higher slab and clash with the accrued interest the bank already reported year by year in your AIS, creating a mismatch.

What to Do Next

1. Pull up your AIS on the income tax portal and note the total interest reported by every bank — savings and deposits separately. This is the figure the department already has.
2. Reconcile it against your own passbook and FD statements, and check the TDS deducted using the TDS calculator.
3. Decide your regime. If you are a senior citizen with meaningful interest, the old regime plus 80TTB often wins; below 60, weigh it against the new regime using the income tax calculator.
4. If your total income is below the taxable limit, submit Form 15G or 15H to your bank at the start of the financial year to stop unnecessary TDS — read the Form 15G and 15H guide first.
5. Keep your interest certificates filed using a tax document checklist so the numbers are ready when you file.

Interest income is one of the easiest things to get wrong and one of the easiest for the tax department to catch, because banks report it directly. Treat every rupee of interest as taxable, use 80TTA or 80TTB if you are in the old regime, and reconcile against your AIS before filing. Do that, and FD income becomes a non-event at tax time.

Disclaimer: This article is for educational purposes only and is not tax advice. Tax rules change frequently — verify current provisions on the official income tax portal or with a qualified CA before filing.