TDS on FD investments
Fixed deposits offered by banks and NBFCs are all applicable to tax deductions. Different thresholds of deductions on interest earnings are applicable to different age groups.
1. TDS on Bank FD
TDS on FD interest is levied on interest income exceeding Rs 50,000 for individuals below 60 years and Rs. 1,00,000 for senior citizens. The tax deduction rate is 10%.
2. TDS on non-bank (NBFC) FD
For non-bank (NBFC) FD, the threshold limit for tax on FD interest is Rs. 10,000. The interest income will be taxable if the earnings exceed Rs. 10,000 in the case of a company FD. The TDS is deducted at 10%. But if the interest you earn on FD exceeds the amount mentioned above, and you fail to share your PAN details with your bank or NBFC, the TDS to be deducted doubles to 20% of the interest earned.
Indian residents pay lesser TDS compared to their NRI counterparts, 10 and 30 per cent respectively. For both cases, you can submit Form 15G or Form 15H at the beginning of the financial year to claim tax exemption on fixed deposit.
If your total income is below the tax slab threshold, you can either submit supporting documents or file for a TDS return later.
TDS on FD with an example
Fixed Deposits (FDs) are a popular investment option offering guaranteed returns. But the interest earned on FDs is taxable. Here's how TDS on FD works:
For regular citizens (below 60 years old), any interest income exceeding Rs. 40,000 per year attracts a 10% TDS. Let's say you have 3 FDs: Bank A (Rs. 60,000 interest), Bank B (Rs. 30,000) and Bank C (Rs. 20,000). Only Bank A's interest surpasses the Rs. 40,000 threshold, so TDS applies only to that amount. Banks B and C's interest will be exempt from TDS.
Senior citizens (60 years and above) enjoy a higher exemption limit of Rs. 50,000 under Section 80TTB of the Income Tax Act. This means they can earn more interest on their Fixed Deposit before any TDS is deducted.
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New TDS threshold limit for FDs (FY 2025–26)
Effective from April 1, 2025, the Union Budget 2025 has revised the TDS exemption limits on interest income from FDs as follows:
Category
|
TDS Exemption Limit (Rs. )
|
Senior Citizens
|
1,00,000
|
Other Individuals
|
50,000
|
This means that if the total interest earned from FDs in a financial year does not exceed the respective exemption limit, no TDS will be deducted by the bank.
FD TDS exemption limit (FY 2024–25)
For the financial year 2024–25 (up to March 31, 2025), the TDS exemption limits were:
Category
|
TDS Exemption Limit (Rs. )
|
Senior Citizens
|
50,000
|
Other Individuals
|
40,000
|
If the interest income exceeded these thresholds, banks deducted TDS at the applicable rates.
Note: To avoid TDS deduction when your total income is below the taxable limit, you can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) to your bank.
How is TDS Calculated on Fixed Deposit (FD)?
The total interest income from your fixed deposits in a given financial year must be included to your total income and taxed accordingly if the bank does not deduct TDS from it.
- TDS on FD Interest: Tax Deducted at Source (TDS) is levied on FD interest income exceeding Rs. 40,000 (for individuals below 60 years) and Rs. 50,000 (for senior citizens) in banks, and Rs. 10,000 for NBFCs.
- Tax on FD: Include all FD interest income in your ITR, even if TDS is deducted.
- Avoiding TDS: Submit Form 15G or 15H to your bank to claim TDS exemption.
TDS on FD interest for senior citizens
Senior persons are eligible for income tax deductions of up to Rs. 50,000 per year. It is relevant if they get interest income from fixed deposits, savings accounts, and recurring deposits. This is a change made in accordance with the 2018 finance act.
TDS on FD interest for non-senior citizens
The TDS (tax deducted at source) rate on FD (Fixed Deposit) interest for non-senior citizens in India is 10% of the interest earned, provided the interest income exceeds Rs. 40,000 in a financial year.
If your total income for the financial year, including the interest income from FD, is below the basic exemption limit, you can submit Form 15G or Form 15H to the bank. This acts as a request that no TDS be deducted on the interest income.
If you fall in the higher tax bracket, you may have to pay additional tax on the FD interest earned, over and above the TDS deducted by the bank. You should consult a tax expert or refer to the latest tax laws to understand your tax liabilities and obligations.
What is the exemption limit for TDS deduction on an FD?
Starting from the financial year 2025–26, FD interest will not attract TDS if the total interest earned in a year does not exceed Rs. 50,000. The calculation of this limit varies based on whether the bank operates under a Core Banking System (CBS) or not.
While most private and nationalized banks use CBS, several co-operative and smaller banks may still operate without it.
Example
Case 1: Bank with CBS
Ms. Meera holds FDs in three branches of Bank X, which operates on CBS. Her annual interest earnings are:
Branch 1: Rs. 2,50,000 FD → Rs. 29,000 interest
Branch 2: Rs. 3,50,000 FD → Rs. 21,000 interest
Branch 3: Rs. 4,50,000 FD → Rs. 30,000 interest
Since CBS aggregates interest from all branches, her total interest is Rs. 80,000, which exceeds the Rs. 50,000 threshold. Therefore, TDS will be deducted.
Case 2: Bank without CBS
Ms. Meera also has FDs in three branches of Bank Y, which does not operate on CBS, earning the same amounts as above. Here, the Rs. 50,000 limit is checked separately for each branch. As interest in every branch is below the limit, no TDS is deducted despite the combined total being Rs. 80,000.
