How FD Interest Is Taxed in India

Fixed deposits are prized for being safe and predictable — but the return you see advertised is a pre-tax number. Interest from an FD is fully taxable, and understanding how that tax works can save you from nasty surprises at filing time.

FD interest is taxed at your slab rate

Interest earned on a fixed deposit is added to your total income under the head “Income from Other Sources” and taxed at your applicable income-tax slab rate. If you’re in the 30% bracket, roughly a third of your FD interest goes to tax; if you pay no tax, the interest is effectively tax-free (though you may still need to reclaim any TDS — more on that below).

This is why your post-tax return matters more than the headline rate. A 7% FD is worth about 4.9% after tax to someone in the 30% bracket. Keep that in mind when comparing an FD against other options.

TDS: tax deducted at source

Banks deduct TDS (Tax Deducted at Source) on FD interest once your interest from that bank crosses a threshold in a financial year. A few important points:

• The threshold is higher for senior citizens than for others, and both can change with each Union Budget — always check the current limit.
• TDS is usually 10% if your PAN is registered (and higher if it isn’t).
• TDS is not a separate or final tax. It’s an advance deduction. You still declare the full interest in your return and pay tax at your actual slab — the TDS already paid is adjusted against your final liability.

So if you’re in the 30% bracket, the 10% TDS isn’t the end of it; you owe the remaining tax. And if you’re below the taxable limit, you can claim the TDS back as a refund.

Interest is taxed as it accrues

A common misconception is that FD interest is taxed only when the deposit matures. In practice, for a cumulative (reinvestment) FD, the interest accrues each year and is generally taxable year by year — even though you haven’t received the cash yet. Banks report it annually, so declare it each year to avoid a mismatch.

How to avoid excess TDS: Form 15G / 15H

If your total income is below the taxable limit, you can ask your bank not to deduct TDS by submitting:

• Form 15G if you’re below 60, or
• Form 15H if you’re a senior citizen,

provided you meet the eligibility conditions. Submit it at the start of the financial year and to each bank where you hold deposits. This spares you from having to claim a refund later.

Simple ways to manage FD tax

• Spread deposits across banks or family members (within genuine ownership) so no single account’s interest balloons.
• Use the right owner: interest is taxed in the hands of the account holder, so a deposit in the name of a lower-income family member is taxed at their (often lower) slab — but only if the funds and ownership are genuinely theirs.
• Factor tax into comparisons: when you use the FD Calculator, remember the maturity figure is pre-tax.

The bottom line

FD interest is fully taxable at your slab rate, TDS is only an advance instalment (not the final tax), and interest is generally taxed as it accrues each year. If your income is below the taxable limit, Form 15G/15H prevents unnecessary TDS. To see how your slab affects the picture, pair the FD Calculator with an Income Tax Calculator (coming soon), and if you’re weighing FDs against recurring deposits, read FD vs RD. Senior citizens have an extra tax-free layer via Section 80TTB worth knowing about too.

Learn more from official sources

• Income Tax Department — official portal for slab rates, TDS thresholds and Form 15G/15H.
• Reserve Bank of India — regulator for Indian banks and deposit products.

This is general information, not tax advice. Thresholds and rules change with each Budget — verify current figures with the Income Tax Department or a qualified professional.