Income Tax on FD Interest: TDS Under 194A, Form 15G/15H, and How to Report It Correctly
- Fixed-deposit interest is taxed at your slab rate every year on accrual, whether or not the bank paid it out or deducted TDS — the 10% TDS is a prepayment, not the final tax.
- From FY 2025-26 banks deduct TDS only when interest in a year exceeds ₹50,000 (₹1,00,000 for senior citizens); below that nothing is deducted but the income is still taxable.
- Form 15G/15H stops TDS only if your total income is below the taxable limit; filing it when you are taxable is a false declaration.
Fixed deposits are the most widely held investment in India and the most widely misreported. Three beliefs cause the trouble: that interest is taxable only when the FD matures; that if the bank did not deduct TDS there is nothing to declare; and that Form 15G is a way to "save tax". None of them is correct. This guide sets out how FD interest is taxed, what the bank is required to deduct, how to stop the deduction legitimately, and how to report the income so that the figure in your return matches what the bank has already told the department.
How FD interest is taxed
Interest on fixed deposits, recurring deposits and savings accounts is income from other sources, added to your total income and taxed at your slab rate. There is no special rate and, in the new regime, no deduction against it. In the old regime, section 80TTA allows up to ₹10,000 of savings-account interest (not FD) to be deducted, and section 80TTB allows senior citizens up to ₹50,000 across savings, FD and recurring deposits.
Timing: the department expects interest to be offered on accrual, year by year, because that is how banks report it in the AIS and deduct TDS. Offering the whole interest of a five-year cumulative FD in the year of maturity creates four years of mismatch with AIS and, often, a higher slab in the maturity year.
TDS under section 194A — thresholds and rates
| Depositor | Threshold per bank per year (FY 2025-26 onwards) | TDS rate |
|---|---|---|
| Individual below 60, HUF | Interest above ₹50,000 | 10% with PAN; 20% without PAN |
| Senior citizen (60+) | Interest above ₹1,00,000 | 10% with PAN; 20% without PAN |
| Co-operative society or post office deposits | Same thresholds, as notified | 10% |
The threshold is tested per bank, aggregating all branches of that bank since core banking. Splitting deposits across banks to stay under the threshold stops TDS but not tax — every rupee still goes in the return, and AIS shows every bank.
Form 15G and 15H — when they are legitimate
These are self-declarations asking the bank not to deduct TDS because your tax on total income will be nil.
- Form 15G (below 60): valid only if your estimated total income for the year is below the basic exemption limit and the total interest income is below that limit. In the new regime the practical zero-tax threshold is ₹12 lakh because of the 87A rebate, but the Form 15G test still uses the basic exemption limit of ₹4 lakh (new regime) or ₹2.5 lakh (old regime), so many people who would pay no tax still cannot file 15G.
- Form 15H (60 and above): valid if tax on your estimated total income is nil after rebate — a more generous test, which is why most senior citizens with income up to ₹12 lakh in the new regime can file it.
- Both must be filed every financial year, with every bank, ideally in April before the first interest credit. They carry your PAN and are reported by the bank to the department, so a false 15G is traceable and punishable under section 277.
Reporting it in the return
- Download the interest certificate from each bank for FY 2025-26 and open the AIS; the two should match. If AIS shows an FD you do not recognise, check for a joint holding where you are first holder.
- Enter the total under Income from other sources → Interest from deposits. Do not net off TDS; show gross interest.
- Claim the TDS in the Tax paid schedule from Form 26AS. If TDS was deducted at 20% because PAN was not linked, the credit still appears against your PAN only after the bank corrects its statement — chase the bank.
- If total tax after TDS exceeds ₹10,000, you were liable for advance tax in four instalments; interest under 234B and 234C applies for shortfalls. Senior citizens without business income are exempt from advance tax.
- Check the effect of the interest on your regime choice and slab with the Income Tax Calculator; a large FD ladder can push a borderline new-regime taxpayer past the ₹12 lakh rebate limit, where marginal relief then matters.
Joint deposits, minors and gifts
Interest on a joint FD is taxed in the hands of the person whose money funded it, not split equally, and TDS is deducted against the first holder's PAN. An FD in a minor child's name from money you gave is clubbed with the parent's income under section 64 (with a ₹1,500 exemption per child). An FD in a spouse's name from your funds is likewise clubbed. Deposits in a parent's name from their own savings are taxed in their hands — which is often the legitimately better outcome when the parent is a senior citizen with no other income.
Common mistakes
- Declaring interest only at maturity. AIS has reported it every year; the mismatch is automatic.
- Assuming no TDS means no tax. The threshold is about the bank's duty to deduct, not about whether the income is taxable.
- Filing Form 15G while in a job. If salary alone exceeds the basic exemption limit, 15G is false; the bank's report of it is the first thing a scrutiny pulls.
- Not linking PAN. TDS doubles to 20% and the credit may not reflect in 26AS.
- Forgetting 80TTB. Senior citizens in the old regime leave up to ₹50,000 of deduction on the table every year.
- Ignoring advance tax on large interest. Interest under 234C accrues quarterly even though TDS at 10% was deducted, because the slab tax is 20% or 30%.
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Open Income Tax Calculator →Frequently asked questions
Is FD interest taxable if the bank did not deduct TDS?
Yes. TDS under section 194A is deducted only when interest in a year exceeds ₹50,000 (₹1,00,000 for senior citizens from FY 2025-26). Below that the bank deducts nothing, but the interest remains fully taxable at your slab and appears in your AIS, so it must be reported.
Should I declare FD interest every year or on maturity?
Every year, on accrual. Banks report accrued interest annually in the AIS and deduct TDS on that basis. Declaring the whole amount at maturity creates mismatches in every intervening year and can push the maturity year into a higher slab.
Who can submit Form 15G for FD interest?
An individual below 60 (or an HUF) whose estimated total income for the year is below the basic exemption limit and whose total interest income is also below it. A salaried person whose salary alone exceeds the exemption limit cannot file 15G even if the final tax after rebate is nil. Form 15H for senior citizens applies the easier test of nil tax after rebate.
How is interest on a joint FD taxed?
In the hands of the person who contributed the money, not equally between holders. TDS is deducted against the first holder's PAN, so if the second holder funded the deposit, they report the income and claim the TDS credit after the bank reflects it, or the first holder reports it and the funds trail should support that.
General information for FY 2026-27, not professional advice for your specific case. Rules change — verify against the latest notification or ask a KyaTax expert.
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