Tax on FD Interest in India: What You Actually Owe
Fixed deposit interest feels safe — but every rupee of it is taxable income at your slab rate.
Fixed deposits with SBI, HDFC, ICICI, or any other Indian bank are a cornerstone of conservative savings. They offer guaranteed returns and capital safety — but the interest they generate is fully taxable under the head "Income from Other Sources." There is no special rate or exemption for FD interest (unlike equity LTCG). You pay tax at your income tax slab rate, which for the highest earners is 30%.
How FD Interest Is Taxed
FD interest is taxed on an accrual basis in India, not a receipt basis. This means even if you have a cumulative FD that pays out only at maturity, you must declare the interest each year as it accrues — not just in the year you receive the lump sum.
FD: ₹3,00,000 at 7.5% for 3 years (cumulative)
Year 1 accrued interest: ₹22,500 → Declare in ITR for FY 2025-26
Year 2 accrued interest: ₹24,188 → Declare in ITR for FY 2026-27
Year 3 accrued interest: ₹25,952 → Declare in ITR for FY 2027-28
Total maturity: ₹3,72,640 (approx)
If you wait until maturity and declare all ₹72,640 in one year, you may face a demand for back taxes and interest for earlier years.
Tax Rates by Slab
Under the new tax regime (default from FY 2024-25 onwards):
| Total Income | Tax Rate |
|---|---|
| Up to ₹3 lakh | Nil |
| ₹3 lakh – ₹7 lakh | 5% |
| ₹7 lakh – ₹10 lakh | 10% |
| ₹10 lakh – ₹12 lakh | 15% |
| ₹12 lakh – ₹15 lakh | 20% |
| Above ₹15 lakh | 30% |
FD interest is added to your total income, so if you are in the 30% bracket, ₹1 lakh of FD interest costs you ₹30,000 in tax (plus cess).
Use our income tax calculator to compute the exact tax on your combined income including FD interest.
Section 80TTA and 80TTB: Partial Relief
- Section 80TTA — Deduction of up to ₹10,000 on interest from savings bank accounts (not FDs). Available only under the old tax regime.
- Section 80TTB — Senior citizens (60+) can claim a deduction of up to ₹50,000 on interest from all deposits, including FDs and savings accounts. Available only under the old tax regime.
Under the new regime, neither deduction is available, but senior citizens benefit from the higher TDS threshold of ₹50,000.
How TDS Interacts With Your Tax Liability
Your bank deducts TDS at 10% once interest crosses ₹40,000 in a financial year (₹50,000 for seniors). This TDS is an advance tax payment — it does not settle your full liability.
Example:
- Amit (age 45) earns ₹12 lakh salary + ₹80,000 FD interest
- Total income: ₹12.8 lakh (new regime)
- Tax on ₹12.8 lakh: approximately ₹1,10,000
- Tax attributable to FD income at marginal rate (20%): ₹16,000
- TDS already deducted by bank: ₹8,000
- Shortfall: ₹8,000 payable as self-assessment tax before filing
Reporting FD Interest in Your ITR
- Obtain Form 26AS / AIS from the income tax portal — it shows TDS deducted by your bank.
- Obtain the FD interest certificate from your bank (usually available in net banking under "Tax Statements").
- Report interest under Schedule OS (Other Sources) in ITR-1 or ITR-2.
- Claim the TDS credit — it is auto-populated from Form 26AS.
- Pay any remaining tax as self-assessment tax before submitting.
Tips to Manage FD Tax Efficiently
- Spread FDs across family members in lower tax brackets (spouse, parents). Each individual's FD interest is taxed at their own slab rate.
- Consider tax-saver FDs (Section 80C) under the old regime — a ₹1.5 lakh FD with a 5-year lock-in qualifies for 80C deduction, though the interest earned is still taxable.
- Senior citizen family members benefit from the ₹50,000 TDS threshold and 80TTB deduction under the old regime.
- Compare post-tax FD yield vs PPF/ELSS — a 7% FD gives only 4.9% post-tax for someone in the 30% bracket, while PPF interest is fully exempt.
Use our PPF calculator to compare PPF returns against your net FD yield.
Conclusion
FD interest is straightforward to understand but easy to mismanage at tax time. Declaring it annually on an accrual basis, reconciling with Form 26AS, and computing whether TDS covers your full liability are the three habits that keep you compliant and penalty-free. If your FD corpus is substantial and you are in the 20–30% slab, exploring tax-efficient alternatives like PPF or debt funds (check current rules) alongside FDs may significantly improve your net returns.
These figures are estimates for educational purposes. Consult a SEBI-registered advisor for personalised advice.
Frequently asked questions
Is FD interest taxable even if I do not withdraw it?+
Yes. FD interest is taxable on an accrual basis each year, even for cumulative FDs where interest is reinvested and paid only at maturity. You must declare the interest earned each year in your ITR.
Can I claim a deduction on FD interest under Section 80C?+
No. The FD interest itself is not deductible. However, the principal invested in a tax-saver FD (5-year lock-in) qualifies for a deduction up to ₹1.5 lakh under Section 80C, but only under the old tax regime.
What is the tax-free limit for senior citizens on FD interest?+
Under the old tax regime, senior citizens can claim a deduction of up to ₹50,000 on interest from all bank and post office deposits under Section 80TTB. Under the new regime, this deduction is not available, but no TDS is deducted until interest exceeds ₹50,000 per bank.
What happens if I forget to report FD interest in my ITR?+
The Income Tax Department receives TDS data and AIS data from banks. Underreporting FD interest can lead to a tax notice, demand for back taxes, and interest charges under Sections 234A, 234B, and 234C.
How do I get my FD interest certificate from my bank?+
Log in to your bank's net banking portal and look for "Tax Statements" or "Interest Certificate" under the accounts or fixed deposits section. SBI, HDFC, and ICICI all offer this digitally. You can also visit the branch and request a physical certificate.
Try the calculators
Keep reading
- What Is TDS on FD? How Banks Deduct Tax on Fixed Deposits
Your bank quietly deducts TDS on FD interest — here is what that means and how to avoid unnecessary deductions.
- Fixed Deposit vs Recurring Deposit: Which to Choose?
A fixed deposit and a recurring deposit pay similar rates — but because of *when* your money is invested, the same total earns very different interest.
- What Is Form 26AS? Your Complete Tax Credit Statement Explained
Form 26AS is the one document that knows everything the government knows about your income — always reconcile before you file.
Maya has spent the last decade turning confusing money topics into plain English. She’s happiest when a reader tells her a guide finally made compound interest click.