If you hold a fixed deposit in India, you’ve probably noticed the interest credited to your account is a little lower than the number you calculated yourself. That gap is usually TDS on fixed deposit interest — tax the bank deducts before the money ever reaches you. It isn’t a penalty or a fee; it’s an advance collection of the income tax you may owe on that interest. Here’s exactly how much banks deduct, when they’re required to do it, and how to legally reduce or avoid it.
What Is TDS on Fixed Deposit Interest?
TDS, or Tax Deducted at Source, is a mechanism where the payer of income — in this case, your bank — deducts tax before crediting the interest to you, and deposits it directly with the government on your behalf. TDS on fixed deposit interest applies once your total interest income from that bank crosses a set threshold in a financial year. It isn’t a final tax; it’s an advance payment that gets adjusted against your actual tax liability when you file your income tax return.
How Much Does the Bank Deduct?
The Threshold Limits
Banks are only required to deduct TDS once your total FD interest from that specific bank crosses ₹50,000 in a financial year for regular depositors, or ₹1,00,000 for senior citizens. This threshold applies per bank, not per branch or per deposit — so if you have three FDs at the same bank, the interest from all three is added together to check whether you’ve crossed the limit.
The TDS Rate
If your interest crosses the threshold, the bank deducts 10% as TDS, provided your PAN is linked to the account. If your PAN isn’t on record, the deduction jumps to 20%, which is one of the most common and avoidable reasons people lose more money than necessary to TDS.
Worked Example: Calculating TDS on Fixed Deposit Interest
Say you’re a 35-year-old with a fixed deposit at one bank earning ₹62,000 in interest this financial year, and your PAN is on file. Since ₹62,000 crosses the ₹50,000 threshold, the bank deducts 10% TDS on the full ₹62,000 — not just the amount above the threshold. That works out to ₹6,200 deducted, leaving you with ₹55,800 credited to your account. You can check this kind of interest math quickly using our Compound Interest Calculator or Simple Interest Calculator, depending on how your bank compounds the deposit.
How to Avoid or Reduce TDS on Your FD
You can’t avoid TDS just because you don’t want it deducted — but if your total income for the year is below the basic taxable limit, you’re entitled to stop the deduction entirely through a self-declaration.
Form 121: The New Unified Declaration
Until recently, this was done using Form 15G (for individuals below 60) or Form 15H (for senior citizens). Under the Income Tax Act, 2025, both forms have been merged into a single unified form, Form 121, effective from April 1, 2026. If your estimated total income for the year falls below the taxable threshold, submitting Form 121 to your bank at the start of the financial year — or as soon as you open a new FD — instructs the bank not to deduct TDS on fixed deposit interest at all.
A few practical points worth knowing:
- Submit the form to every bank where you hold an FD; a declaration at one bank doesn’t cover deposits elsewhere.
- If your actual income later crosses the taxable limit, you’re still liable to pay tax on the interest — the declaration only stops the upfront deduction, it doesn’t exempt the income itself.
- Linking your PAN to every FD account avoids the higher 20% deduction rate even if you don’t qualify for a full TDS exemption.
What Changed Under the Income Tax Act, 2025
TDS on interest income used to fall under Section 194A of the Income-tax Act, 1961. From April 1, 2026, this is now covered under the consolidated Section 393 of the Income Tax Act, 2025, which brings together dozens of previously separate TDS provisions into a single section. The threshold and 10% rate haven’t changed with the renumbering — what’s changed is the section reference and the paperwork (Form 121 instead of 15G/15H). You can read the official provision on the Income Tax Department’s website.
Key Takeaways
- TDS on fixed deposit interest kicks in once your interest from one bank crosses ₹50,000 a year (₹1,00,000 for senior citizens).
- The standard rate is 10% with PAN on file, 20% without it.
- TDS is an advance tax collection, not a final tax — reconcile it when you file your return.
- Submit Form 121 (the successor to Forms 15G/15H) if your total income is below the taxable limit, to prevent the deduction upfront.
FAQ
Does TDS mean I don’t have to pay tax on FD interest?
No. TDS is only a deduction at source. The interest is still taxable at your applicable income tax slab rate, and TDS is adjusted against your final liability when you file your return.
What if the bank deducts TDS but my income is actually below the taxable limit?
You can claim a refund of the excess TDS when you file your income tax return, though submitting Form 121 in advance saves you from having the money deducted — and waiting for a refund — in the first place.
Does the ₹50,000 threshold apply across all my banks combined?
No, it applies per bank. If you spread deposits across multiple banks and stay under ₹50,000 of interest at each one, no single bank is required to deduct TDS — though the interest is still taxable income you must declare.
Want to plan how much interest a new FD will actually earn before tax? Try the Compound Interest Calculator, or estimate your overall tax picture with the Income Tax Calculator India.