Income Tax on Fixed Deposits (FDs) in India: TDS, Exemptions & Smart Tax Planning (FY 2025–26 Guide)
Fixed Deposits (FDs) are one of the safest investment options in India. However, FD interest is fully taxable, and most people do not understand the TDS rules, exemption limits, or smart tax strategies that can significantly reduce their tax burden. ...
Fixed Deposits (FDs) are one of the safest investment options in India. However, FD interest is fully taxable, and most people do not understand the TDS rules, exemption limits, or smart tax strategies that can significantly reduce their tax burden.
This blog explains:
How FD interest is taxed
TDS rates and rules (2025 updated)
Old vs New Regime treatment
Exemptions for senior citizens
When to submit Form 15G/15H
Best tax planning strategies for salaried and senior citizens
1. Is FD Interest Taxable?
Yes. FD interest is fully taxable under the head “Income from Other Sources.”
It is taxed at your income-tax slab rate:
5%
10%
15%
20%
30%
👉 No special lower tax rate is available for FD income.
2. TDS on FD Interest — Rules for FY 2025–26
Banks deduct TDS when annual interest exceeds ₹40,000 (non-senior citizens) or ₹50,000 (senior citizens).
TDS Rates
| Category | TDS Rate |
| PAN submitted | 10% |
| PAN NOT submitted | 20% (as per section 206AA) |
| NRI FD | 30% + surcharge + cess |
Banks deduct TDS at the time interest is credited, even if you haven’t withdrawn it.
3. TDS Threshold Limits (2025)
| Category | Annual FD Interest | TDS Deducted? |
| Non-senior | Up to ₹40,000 | ❌ No |
| Senior citizen (60+) | Up to ₹50,000 | ❌ No |
| NRI | Any amount | ✔ Yes (always) |
4. Deductions & Exemptions for FD Interest
✔ Section 80TTA — Savings Interest Only (Not FD)
Up to ₹10,000 deduction
Applies to savings account interest ONLY
Not applicable to FD interest
✔ Section 80TTB — For Senior Citizens (Big Benefit)
Senior citizens (60+) get up to ₹50,000 deduction on:
FD interest
RD interest
Savings account interest
Post office deposit interest
👉 This is the MOST powerful tax benefit for senior citizens.
5. Old Regime vs New Regime — Which Gives Better FD Tax Benefits?
Old Regime
Allows 80TTB deduction (₹50,000)
Senior citizens benefit the most
Better for those with investments, loans, insurance
New Regime
80TTB still allowed (one of the few remaining deductions)
Standard deduction ₹75,000
Lower slab rates if income > ₹7 lakh
Which should you choose?
Senior citizens with FD interest: Old regime is often better
Salaried with no major deductions: New regime may be better
6. Form 15G / Form 15H — To Avoid TDS on FD Interest
✔ Form 15G — For individuals < 60 years
Submit if:
Taxable income < basic exemption
FD interest does not make your tax > 0
✔ Form 15H — For senior citizens (60+)
Submit if:
Estimated tax payable = zero
Much easier approval since seniors have higher exemption limits
Where to submit?
Bank branch
Net banking
Mobile app (most banks support it)
👉 Submit EVERY YEAR in April to avoid unnecessary TDS.
7. Smart Tax Planning Strategies for FD Investors (2025)
1. Use Senior Citizen FDs If Eligible
Usually offer 0.25%–0.75% higher interest.
2. Split FDs Between Spouse / Parents
Clubbed income rules apply only for spouse →
⇒ Opening FDs in parents’ name (60+) can reduce tax legally.
3. Choose Monthly or Quarterly Interest Payout
Helpful for retirees needing regular income.
4. Use Form 15G/15H to Avoid TDS
Submit if your total tax liability is zero.
This increases liquidity.
5. Move Excess FD Funds to Debt Mutual Funds
Debt funds are more tax-efficient if:
Holding > 36 months
Lower tax on capital gains compared to slab rate
6. Use SCSS & POMIS for Senior Citizens
SCSS interest taxable but covered under 80TTB.
POMIS interest non-market-linked and safe.
8. Example Calculations
Example 1 — Non-Senior Citizen with FD Interest ₹55,000
FD Interest: ₹55,000
TDS deducted: 10% = ₹5,500
Taxable income = ₹55,000 (no deductions allowed)
If slab = 5% → Tax = ₹2,750
But TDS deducted = ₹5,500 → Refund = ₹2,750
Example 2 — Senior Citizen with FD Interest ₹75,000
Interest: ₹75,000
80TTB deduction: ₹50,000
Taxable interest = ₹25,000
→ If total income after all deductions < ₹5 lakh → Zero tax
→ No TDS if Form 15H was submitted
Example 3 — Super Senior (80+) with FD ₹1,20,000
Exemption limit = ₹5 lakh
80TTB = ₹50,000
Taxable interest = ₹70,000
Total income < ₹5 lakh? → Zero tax
❓ FAQ (Schema Ready)
Q1: Is FD interest tax-free?
No — it is 100% taxable.
Q2: Can I avoid TDS on FD interest?
Yes — by submitting Form 15G/15H.
Q3: Are senior citizens taxed differently?
Yes — they get higher 80TTB deduction + higher basic exemption limit.
Q4: Do NRIs pay TDS on FD interest?
Yes — 30% + surcharge + cess.
📣 Call to Action
Want to reduce tax on your FD interest legally?
WonderTax experts help you optimise investments, save taxes, and file your ITR flawlessly.
👉 Book a consultation today: https://wondertax.in/contact-us
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