How Fixed Deposit Interest Is Taxed in India

Short answer: FD interest is fully taxable at your income-tax slab rate, and the bank deducts TDS once your interest crosses a threshold — but TDS is not the final tax, you still report it in your return.

Taxed at Your Slab

Interest earned on a fixed deposit is added to your total income under 'income from other sources' and taxed at whatever slab rate applies to you. For someone in a high slab, this makes FDs less attractive after tax than the headline rate suggests.

How TDS Works

Banks deduct tax at source on FD interest once your interest from that bank in a year crosses a specified limit (a higher limit applies to senior citizens). If your PAN is not updated, TDS is deducted at a higher rate. Remember, TDS is only a part-payment, not your full liability.

Interest Is Taxed as It Accrues

For cumulative FDs where interest is paid only at maturity, tax is generally due each year as the interest accrues, not just in the final year. Your annual information statement will reflect this, so account for it even before you receive the money.

Form 15G/15H

If your total income is below the taxable limit, you can submit Form 15G (or 15H for seniors) to the bank to avoid TDS being deducted. Do not file these falsely — submit them only if you genuinely owe no tax.

Tax-Saving FDs

A five-year tax-saving fixed deposit qualifies for an 80C deduction in the old regime, but the interest it earns is still fully taxable. The deduction is on the amount invested, not on the returns.

Sources: Income Tax Department of India

This explainer was written by The Dispatch desk to answer a question readers commonly ask. It is general information, not personalised financial advice.