TDS on fixed deposit means your bank deducts tax at source on the interest your FD earns. From Budget 2025 (FY 2025-26), a bank deducts TDS only once your FD interest with that bank crosses ₹50,000 in the year (₹1,00,000 for senior citizens). The rate is 10% with PAN, or 20% if no PAN is on record. Crucially, this TDS is not an extra tax — it is an advance instalment that adjusts against your final income-tax bill.
That last point is where most savers panic unnecessarily. Seeing tax cut from your interest does not mean you have lost money or been taxed twice. It simply means part of the tax you would owe anyway has already reached the government in your name. This guide explains the new ₹50,000 rule in detail, how banks compute the threshold, when to file Form 15G/15H, and exactly how to claim a refund if too much was deducted.
What changed in Budget 2025: the new ₹50,000 threshold
Until FY 2024-25, banks deducted TDS on FD interest once it crossed ₹40,000 in a year (₹50,000 for senior citizens). Budget 2025, presented in February 2025, raised these limits with effect from 1 April 2025 (i.e. FY 2025-26, AY 2026-27):
| Depositor | Old threshold (up to FY 2024-25) | New threshold (FY 2025-26 onward) |
|---|---|---|
| Resident below 60 (bank/co-op FDs) | ₹40,000 | ₹50,000 |
| Senior citizen (60+) | ₹50,000 | ₹1,00,000 |
The threshold is per financial year and is based on the total interest paid or credited by one bank, across all your deposits with that bank. It is not per FD and not per branch. Note that this is governed by Section 194A of the Income Tax Act, which covers interest from banks, co-operative banks and post-office time deposits. Interest from company (corporate) FDs is covered by a separate provision with its own, lower threshold, so the ₹50,000 rule discussed here applies to bank fixed deposits.
A common myth is that crossing the threshold makes the entire interest taxable. It does not. The threshold only decides whether TDS is deducted; your tax liability on FD interest is a separate question decided by your income slab. Even small FD interest below ₹50,000 is still technically taxable income that you should report — the bank just won't deduct TDS on it.
How much TDS is deducted: 10% with PAN, 20% without
Once your interest with a bank crosses the threshold, the bank deducts TDS on the interest as it is credited (banks typically credit and assess interest quarterly):
- 10% TDS if your PAN is correctly updated with the bank. This is the standard rate under Section 194A.
- 20% TDS if you have not provided a valid PAN, under Section 206AA. The bank has no choice here — the higher rate is mandatory.
So if a 35-year-old earns ₹70,000 interest in a year from one bank and PAN is on file, the bank deducts 10% = ₹7,000 (deducted proportionately as interest is credited through the year). Without PAN, it would be ₹14,000. The simplest way to avoid the punitive 20% rate is to ensure your PAN is linked and seeded with every bank where you hold deposits.
TDS is deducted on accrued interest, not just at maturity
A frequent surprise: even on a multi-year cumulative FD where you receive interest only at maturity, the bank assesses interest as it accrues each year and deducts TDS annually if the yearly accrued interest crosses the threshold. You don't have to wait for maturity to see TDS appear. This is why your Form 26AS / Annual Information Statement (AIS) may show FD TDS in a year when no money has actually been paid out to you yet.
How banks compute the threshold across branches and deposits
This is where people get caught out. Banks aggregate at the bank level (using your PAN), not the branch level. With Core Banking Systems, all your FDs across every branch of the same bank are pooled to test the ₹50,000 limit.
- Same bank, multiple branches/FDs: interest is added together. Three FDs at the same bank earning ₹20,000 each = ₹60,000, which crosses ₹50,000, so TDS applies.
- Different banks: each bank checks its own threshold independently. ₹40,000 at Bank A and ₹40,000 at Bank B = neither crosses ₹50,000, so neither deducts TDS — even though your total FD interest is ₹80,000.
That second scenario is important: no TDS does not mean no tax. If your total income (including all FD interest) is above the basic exemption limit, you still owe tax on the full ₹80,000 and must pay it via advance tax or self-assessment tax when you file your return. Splitting FDs across banks to stay under the threshold avoids TDS, but it does not avoid the underlying tax — and under-reporting can attract interest and penalties. Use our FD calculator to estimate your annual interest and see whether you are likely to cross the limit at any single bank.
Form 15G and 15H: how to stop TDS legally
If your total taxable income for the year is below the basic exemption limit, you can ask the bank not to deduct TDS by submitting a self-declaration:
- Form 15G — for residents below 60 whose total income is below the taxable limit (and whose total interest doesn't exceed the basic exemption limit).
- Form 15H — for senior citizens (60+) whose final tax liability for the year is nil.
Key points to get this right:
- Submit early, at the start of the financial year (April). Once TDS is deducted, the bank cannot reverse it — you would have to claim a refund from the Income Tax Department instead.
- Submit a separate form to each bank where you hold FDs. One form does not cover all banks.
- These are declarations of estimated total income, not just FD income. Filing 15G/15H when your income is actually above the limit is a false declaration and can attract penalties.
- Most banks let you submit 15G/15H online via net banking — you no longer need to visit a branch.
A senior citizen, in particular, should also remember Section 80TTB, which allows a deduction of up to ₹50,000 on interest income (including FD interest) under the old regime — this often makes their final liability nil and justifies a Form 15H. Non-seniors get a smaller benefit on savings-account interest under Section 80TTA (₹10,000), but that does not cover FD interest.
TDS is not an extra tax — it adjusts against your final bill
This is the single most misunderstood part of TDS, so it's worth being explicit. The tax deducted by your bank is credited to your PAN and shows up in your Form 26AS and AIS. When you file your income-tax return:
- You add all your FD interest to your total income (TDS deducted or not).
- You compute your total tax based on your slab.
- You subtract the TDS already deducted (it's pre-paid tax sitting against your name).
- You pay only the balance, or claim a refund if the TDS was more than your actual liability.
A quick worked example for a salaried person below 60, under the new regime:
| Step | Amount |
|---|---|
| FD interest earned (one bank) | ₹70,000 |
| TDS deducted by bank @ 10% | ₹7,000 |
| Suppose your actual tax on this interest (your slab) | ₹3,500 |
| Result when you file | ₹3,500 refund (you over-paid via TDS) |
If instead your applicable rate on that slab were 20%, your tax on the interest would be ₹14,000, the ₹7,000 TDS covers half, and you'd pay the remaining ₹7,000 as self-assessment tax. Either way, you are taxed once, at your real slab rate — TDS just changes the timing of when the money moves. (Slab rates and which regime you're on determine the actual tax; see how the regimes and deductions interact in our Section 80C tax-saving guide.)
How to claim a TDS refund on FD interest
If TDS was deducted but your final liability is lower (or nil), you get the excess back as a refund — but only by filing your income-tax return (ITR). There is no automatic refund. The steps:
- Check Form 26AS / AIS on the income-tax e-filing portal to confirm how much TDS the bank reported against your PAN. Match it with the bank's TDS certificate (Form 16A, issued quarterly).
- File your ITR for the relevant assessment year (AY 2026-27 for income earned in FY 2025-26), declaring the full FD interest and claiming credit for the TDS.
- Pre-validate your bank account and link PAN with Aadhaar on the portal, so the refund can be credited.
- Once the return is processed, the refund is paid directly to your bank account, usually within a few weeks.
To make this painless, keep your interest certificates from each bank and reconcile them against your AIS before filing. Refunds are processed only for the TDS that actually appears against your PAN — which is another reason to ensure your PAN is correctly seeded with every bank.
If you're weighing whether to keep money in FDs at all versus other options, our guides on the fixed deposit basics for 2026 and building a financial plan can help you balance safety, returns and tax. And if your real goal is to free up cash flow or consolidate debt rather than park savings, you can run a free, no-impact eligibility check on RupeeQuik's apply page — it's a soft credit pull, so it does not affect your credit score.
Frequently Asked Questions
Is FD interest tax-free if it's below ₹50,000?
No. The ₹50,000 figure is only the TDS threshold — the point at which the bank starts deducting tax. FD interest is always taxable income and must be reported in your return. If your interest is below ₹50,000, the bank simply won't deduct TDS, but you may still owe tax on it depending on your total income and slab.
Can I avoid TDS by splitting FDs across multiple banks?
You can avoid the deduction because each bank checks its own ₹50,000 threshold separately. But you cannot avoid the tax — your total FD interest across all banks is still taxable, and you must pay any shortfall via advance or self-assessment tax. Splitting only changes who deducts what; it doesn't reduce your liability, and deliberate under-reporting can attract interest and penalties.
What is the TDS rate on FD interest without a PAN?
20%, under Section 206AA, instead of the normal 10%. The bank is legally required to apply this higher rate if a valid PAN isn't on record. Always link and seed your PAN with the bank to avoid the punitive rate.
When should I submit Form 15G or 15H?
At the start of the financial year (April), and separately to each bank where you hold deposits. Submit Form 15G if you're below 60 and your total income is below the taxable limit, or Form 15H if you're a senior citizen with nil final tax liability. Submitting after TDS is already deducted won't reverse it — you'd have to claim a refund instead.
Does TDS apply to interest on a cumulative (reinvestment) FD before maturity?
Yes. Banks assess interest as it accrues each year, not only at maturity, and deduct TDS annually if the yearly accrued interest crosses the threshold. So you may see TDS in Form 26AS in years when you haven't actually received any payout yet.
How is FD interest taxed under the new tax regime?
Under both regimes, FD interest is added to your total income and taxed at your applicable slab rate. The difference is in deductions: the new (default) regime removes most deductions, while the old regime lets you use, for example, Section 80TTB (up to ₹50,000 for senior citizens on interest income). The TDS mechanism — 10% with PAN, adjustable against final tax — is the same regardless of regime.
Disclaimer: Tax rules, thresholds and rates can change and may vary by your circumstances — always verify current rules with your bank and the Income Tax Department or a qualified tax adviser before acting. RupeeQuik connects users to RBI-regulated lending partners and does not provide tax advice.
