Fixed deposit (FD) interest remains one of the most popular sources of passive income for Indians. However, the interest earned on FDs is taxable and may attract TDS (Tax Deducted at Source) under the Income Tax Act. Understanding the rules can help investors avoid unnecessary deductions and claim refunds where eligible.
TDS, or Tax Deducted at Source, is a mechanism through which banks deduct tax on the interest earned from fixed deposits before crediting the amount to the depositor.
Under Section 194A of the Income Tax Act, banks are required to deduct TDS at 10 percent if the total FD interest earned by an individual exceeds the prescribed threshold during a financial year.
If the depositor does not provide a PAN card, the TDS rate increases sharply to 20 percent.
The exemption limits depend on the age of the depositor.
TDS is deducted if annual FD interest exceeds ₹50,000
The exemption threshold is higher at ₹1 lakh in a financial year
If the interest remains below these limits, banks will not deduct TDS.
Submitting a PAN card to the bank is essential for lower TDS deduction.
Without PAN:
TDS rises from 10 percent to 20 percent
Higher deductions can affect cash flow
Refunds can only be claimed later through income tax returns
Investors should ensure their PAN details are correctly linked with all bank accounts and fixed deposits.
Individuals whose total taxable income falls below the basic exemption limit can avoid TDS by submitting the appropriate declaration form to the bank.
For the 2026-27 financial year, Form 121 is the new unified self-declaration form replacing Forms 15G and 15H to avoid TDS on FD interest, effective from April 1, 2026. It allows residents to declare nil tax liability on income earned from banks when the total income is below the exemption limit.
Premature withdrawal of FDs does not exempt depositors from tax liability. Interest earned until the withdrawal date remains taxable and is added to total income under “Income from Other Sources”.
Banks may also revise the interest rate applicable to prematurely withdrawn deposits.
Taxpayers should report the total interest earned from all fixed deposits while filing ITR.
The details can be checked through:
Form 26AS
Annual Information Statement (AIS)
Taxpayer Information Summary (TIS)
If multiple FDs are held across different banks, the interest from all deposits must be combined and disclosed under “Income from Other Sources”.
New form: Form 121 replaces the old Forms 15G (for individuals under 60) and 15H (for senior citizens).
Eligibility: Applicable for resident individuals/HUFs whose total tax liability is nil and whose interest income does not exceed specific thresholds.
Validity: This form is valid for only one financial year and must be renewed every April.
Submission: Should be submitted to the bank to prevent TDS deduction on FDs.
TDS Rates: Banks will deduct 10% TDS (20% if PAN is not provided) if total interest earnings exceed ₹50,000 in a year (higher threshold for senior citizens).
Alternative: In case of failure to submit Form 121, TDS can be claimed as a refund while filing the Income Tax Return (ITR).
