Fixed Deposits (FDs) are one of the most popular and secure investment options in India, offering guaranteed returns with minimal risk. However, many people are unaware that the interest earned on an FD is subject to income tax. Understanding the tax rules on FD interest is essential for financial planning and compliance with the law.
Pay Income Tax on Interest Earned on FD
| Aspect | Details |
|---|---|
| FD Interest Taxability | Fully taxable under “Income from Other Sources” |
| TDS Deduction Threshold | ₹40,000 per year for individuals, ₹50,000 for senior citizens |
| TDS Rate | 10% if PAN is provided, 20% if PAN is not provided |
| Tax Exemption | Form 15G (for individuals) and Form 15H (for senior citizens) |
| Advance Tax Requirement | If tax liability exceeds ₹10,000 per year |
Understanding how income tax on FD interest works helps in better financial planning and prevents unexpected tax liabilities. Since FD interest is taxable, ensure you report it correctly in your ITR, claim applicable deductions, and file your returns on time. If your income is below the taxable limit, don’t forget to submit Form 15G/15H to avoid unnecessary TDS deductions.
Is Interest Earned on FD Taxable?
Yes, the interest earned on Fixed Deposits is fully taxable under the “Income from Other Sources” category. It is added to your total income and taxed as per your applicable income tax slab.
For example, if you earn ₹50,000 in FD interest and fall under the 30% tax slab, you must pay ₹15,000 as tax (excluding cess and surcharges).
see also: FD or RD Which is the Better Investment Option?
How is TDS Deducted on FD Interest?
Tax Deducted at Source (TDS) applies to FD interest when it exceeds a specific threshold:
- If the total FD interest in a financial year exceeds ₹40,000 for regular individuals, the bank will deduct 10% TDS before crediting the interest to your account.
- For senior citizens (aged 60 and above), this threshold is ₹50,000 per financial year.
- If you do not provide your PAN, the TDS rate increases to 20%.
Example:
If your FD interest is ₹45,000 in a year, the bank will deduct ₹4,500 as TDS (10%). You will receive ₹40,500 in your account.
If TDS is deducted, you can claim credit while filing your Income Tax Return (ITR) and get a refund if your total taxable income is below the exemption limit.
How to Avoid TDS Deduction on FD Interest?
If your total annual income falls below the taxable limit, you can prevent TDS deduction by submitting the following forms:
- Form 15G (For individuals below 60 years of age)
- Form 15H (For senior citizens above 60 years)
These forms declare that your total income is below the basic exemption limit, so the bank should not deduct TDS on your FD interest.
Basic Exemption Limit (As per latest tax slabs)
- Below 60 years: ₹2.5 lakh
- 60-80 years (Senior Citizens): ₹3 lakh
- Above 80 years (Super Senior Citizens): ₹5 lakh
How to Report FD Interest While Filing ITR?
Even if TDS has been deducted, you must report the total interest earned from all FDs in your Income Tax Return (ITR). Here’s how:
- Calculate Total Interest: Collect interest certificates from all banks and sum up the total FD interest earned.
- Report Under “Income from Other Sources”: In your ITR form, declare the total interest under this section.
- Claim TDS Credit: If TDS has already been deducted by the bank, claim the credit to adjust your final tax liability.
- Pay Additional Tax if Required: If your total tax liability exceeds the TDS deducted, pay the difference while filing your ITR.
Advance Tax Liability on FD Interest
If your total tax liability (including FD interest) exceeds ₹10,000 in a financial year, you must pay Advance Tax in four installments:
| Due Date | Advance Tax Payable |
|---|---|
| 15th June | 15% of total tax liability |
| 15th September | 45% of total tax liability |
| 15th December | 75% of total tax liability |
| 15th March | 100% of total tax liability |
Failing to pay advance tax can result in penalties and interest under Section 234B and 234C of the Income Tax Act.
see also: Get Up to 9.5% Interest on Fixed Deposits
Pay Income Tax on Interest Earned on FD FAQs
1. Do I need to pay tax on FD interest if my total income is below ₹2.5 lakh?
No, if your total income (including FD interest) is below the taxable limit, you are not required to pay any tax. You can submit Form 15G/15H to prevent TDS deduction.
2. How can I check if TDS has been deducted on my FD interest?
You can check TDS deductions in Form 26AS on the Income Tax e-filing portal.
3. What if my bank has deducted excess TDS on my FD interest?
You can claim a refund while filing your ITR by reporting the excess TDS under “Tax Paid” and requesting a refund from the Income Tax Department.
4. Does the new tax regime affect FD taxation?
No, under both old and new tax regimes, FD interest is taxed as per your income tax slab. However, in the old regime, senior citizens can claim a deduction of ₹50,000 on FD interest under Section 80TTB.
5. Are FDs in post offices also taxable?
Yes, FD interest from Post Office Time Deposits is taxable, except for 5-year Tax Saving FDs, which offer deductions under Section 80C.
