Fixed deposits are attractive for all, except when the confusion of taxes steps in. Yes, the interest you earn on them is taxable. But interestingly, the tax limits are different for different people. Senior citizens enjoy higher TDS limits. They also get special deductions under Section 80TTB (only in the old tax regime).
It is important to understand how FD interest is taxed and what deductions you may be eligible for in 2025. So, let’s explore.
How is TDS Calculated on a Fixed Deposit (FD)?
You have to pay tax on all the interest you earn from a fixed deposit (FD). This interest income is added to your total annual income and taxed according to your applicable income tax slab. FD interest comes in “Income from Other Sources” under the Income Tax Act.
Banks deduct Tax Deducted at Source (TDS) on FD interest when it is credited to your account, not just at maturity.
- For most individuals, TDS is applicable if your total FD interest in a financial year exceeds ₹50,000.
- For senior citizens, the threshold is higher, i.e., ₹1,00,000 per year. The TDS rate is 10% if you’ve submitted your PAN, and 20% if you haven’t.
If your total income is below the taxable limit (₹2.5 lakh for individuals under 60), you can submit specific forms (discussed below) to prevent TDS from being deducted. Be sure to submit these forms at the start of the financial year to avoid unnecessary deductions.
When and How to Pay Tax on Interest Income
Usually, the deadline for paying taxes on interest income is before the end of the fiscal year. To avoid penalties, it is very important to meet this deadline. If you think your FD interest income will make you owe a lot of taxes, you should pay your Advance Tax in instalments so you don’t have to pay a lot of taxes at the end of the year.
You can pay your taxes online or at authorised bank branches but do keep accurate records.
Ways to Manage Tax on FD Interest
You can give your bank either Form 15G or Form 15H to avoid TDS on your FD interest. These forms are a way for you to tell the bank that TDS will not apply to the FD interest because your income is below the basic exemption limit.
- Use Form 15G if you are under 60 years old.
- Form 15H if you are 60 years old or older.
FD Interest Deduction under Section 80TTB and 80C
You can claim deductions on fixed deposit investments under two key sections of the Income Tax Act, but only if you’ve opted for the old tax regime.
Section 80TTB – For Senior Citizens Only
- This section is only available to individuals aged 60 or above.
- It allows a deduction of up to ₹50,000 per financial year on interest income earned from:
- Savings accounts
- Fixed deposits
- Recurring deposits
- The deduction limit is ₹50,000 or the actual interest earned, whichever is lower.
- This benefit is not available under the new tax regime (Section 115BAC).
Section 80C – For 5-Year Tax-Saving FDs
- If you invest in a 5-year tax-saving FD with a bank, you can claim a deduction under Section 80C.
- The maximum deduction allowed is ₹1.5 lakh per year.
- This is applicable only under the old tax regime.
Note: While the principal amount qualifies for deduction, the interest earned is still fully taxable.
Conclusion
Paying TDS and Income Tax on FD Interest is mandatory. Even if TDS is taken out, it’s important to declare full FD interest in ITR to avoid getting tax notices, fines, or having the Income Tax Department look into an income mismatch. Try to provide your bank with Form 15G or Form 15H to make sure that no TDS is being deducted by the bank.