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Repair Windows errors before they cause bigger problemsFix Now →Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Clear out junk files and repair common Windows errorsFree Scan →Yes. Interest earned on a fixed deposit (FD) is generally taxable in India as income from other sources. TDS is only an advance withholding mechanism. A bank may not deduct TDS because the interest is below the applicable threshold, but that does not make the interest exempt. You must report taxable FD interest in your income-tax return and claim credit for any TDS shown against your PAN.
For bank time deposits in FY 2025–26, the TDS threshold is ₹40,000 for most payees and ₹50,000 for senior citizens. A qualifying five-year tax-saving FD can potentially provide an old-regime section 80C deduction on the investment, but its interest remains taxable.
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What taxable FD interest means
The bank’s interest payment and your final income-tax liability are separate questions. FD interest is normally included under the head Income from other sources. The amount is added to your other taxable income and taxed according to the rates and regime that apply to you.
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TDS may be deducted when the bank credits or pays interest. It is collected on your behalf and reported to the government; it is not automatically the final tax on that income. If your eventual tax liability is higher than the TDS, you pay the balance. If it is lower, the excess can generally be claimed as a refund after filing your return.
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Conversely, no TDS does not mean no tax. For example, if a non-senior citizen earns ₹35,000 of FD interest and the bank does not withhold anything, the ₹35,000 can still be taxable in the return.
FY 2025–26 TDS limits for bank FDs
The Income Tax Department and Ministry of Finance raised the section 194A threshold for bank time deposits from 1 April 2025. The threshold concerns when the bank must withhold TDS, not whether the interest is taxable.
| Payee category | FY 2025–26 bank time-deposit TDS threshold | What the figure means |
|---|---|---|
| Most payees, including non-senior individuals | ₹40,000 | TDS generally applies when the relevant interest crosses the threshold |
| Senior citizens | ₹50,000 | Higher withholding threshold; interest can still be taxable below it |
The Department states that the section 194A threshold is computed separately for each bank. Do not assume that deposits held with unrelated banks are automatically combined for this particular withholding test. Check the bank’s current calculation and your account records, especially where deposits are spread across branches or products.
The threshold is measured for the applicable financial year and bank time-deposit interest. It is not a lifetime allowance, an exemption, or a deduction from taxable income.
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How TDS on FD interest works
When the bank withholds
When the bank’s reportable interest reaches the applicable threshold, it may deduct TDS before paying or crediting the amount. The deduction should appear in the bank’s tax certificate and in the government tax-information systems linked to your PAN.
Why TDS may differ from your final tax
TDS is calculated by the payer under withholding rules. Your final liability depends on all income, eligible deductions, losses, and the tax regime selected in your return. A person can therefore owe additional tax even after TDS, or receive a refund when TDS exceeds the final liability.
Records to reconcile
- Use the FD receipt and bank statements to total interest for the financial year.
- Use Form 16A when the bank has deducted TDS.
- Check Form 26AS and the Annual Information Statement (AIS) for reported interest and TDS.
- Report the taxable amount under income from other sources and claim only the TDS actually credited to your tax records.
If the bank statement, Form 16A, 26AS and AIS do not agree, ask the bank to correct its reporting before filing or revise the return if necessary. Keep the supporting statements and receipts with your tax records.
Does a tax-saving FD make the interest tax-free?
No. A tax-saving FD changes the possible treatment of the investment, not the taxability of the interest. Interest on a qualifying tax-saving deposit, including interest that is reinvested rather than paid out, remains income from other sources.
What can qualify for section 80C
An eligible term deposit with a scheduled bank for a fixed period of at least five years may qualify for section 80C relief. The deduction is part of the combined ₹1,50,000 limit for sections 80C, 80CCC and 80CCD(1). The limit applies across all qualifying items, so money already claimed for other investments reduces the room available for the FD.
Regime restriction
For AY 2026–27, the Income Tax Department’s validation rules say section 80C deductions cannot be claimed under the new tax regime. An eligible tax-saving FD can therefore provide this deduction only when you use a regime that permits it, generally the old regime, and satisfy the other conditions.
Do not choose a five-year FD solely because it is labelled tax-saving. Compare your complete tax calculation under both regimes, including deductions you already use and the interest that will continue to be taxable.
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The qualifying term and withdrawal conditions are product-specific. A five-year term is central to the tax-saving category, but the exact rules for premature withdrawal, loans, closure, nomination and interest payment depend on the bank and scheme. Read the current deposit document before investing; do not assume that every FD allows the same access or penalty structure.
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Regular FD versus tax-saving FD
| Decision point | Regular FD | Tax-saving FD |
|---|---|---|
| Minimum qualifying term | Depends on the product | At least five years for the section 80C category |
| Section 80C treatment | Normally no deduction merely for making an ordinary deposit | Potential deduction for the qualifying investment, within the combined ₹1,50,000 limit and only under a permitted regime |
| Interest | Taxable as income from other sources | Taxable as income from other sources, including reinvested interest |
| Liquidity | Issuer-specific maturity and premature-closure rules | Five-year commitment with issuer-specific withdrawal conditions; verify before purchase |
| Best comparison | Rate, tenure, liquidity and tax on interest | Those same factors plus your unused 80C capacity and tax-regime choice |
Senior-citizen relief: TDS threshold versus section 80TTB
These are different provisions. The ₹50,000 figure for FY 2025–26 is the senior-citizen TDS threshold for bank time deposits. Separately, an eligible resident senior citizen may claim up to ₹50,000 under section 80TTB for qualifying interest from bank, post-office or co-operative-bank deposits, including FDs, under the old-regime deduction framework.
Section 80TTB is claimed in the return; it does not instruct the bank to ignore TDS. If the bank withheld tax, report the interest, claim the eligible deduction, and take credit for the TDS shown in Form 16A, 26AS and AIS. The deduction is capped at ₹50,000 and applies only to qualifying interest and an eligible taxpayer.
Worked examples
Interest below the withholding threshold
A non-senior taxpayer receives ₹35,000 of bank FD interest in FY 2025–26. Because this is below the ₹40,000 threshold for that bank, the bank may not deduct TDS. The taxpayer still includes ₹35,000 in income from other sources and calculates tax under the chosen regime.
Interest above the threshold
A non-senior taxpayer has ₹45,000 of relevant bank time-deposit interest. The amount is above the FY 2025–26 TDS threshold, so the bank may withhold TDS. The taxpayer reports the full ₹45,000, not merely the amount received after withholding, and claims the TDS as a tax credit.
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Senior citizen with section 80TTB
An eligible resident senior citizen receives ₹48,000 of qualifying deposit interest. The amount is below the ₹50,000 senior-citizen TDS threshold, but it remains income. Under the old regime, the taxpayer may be able to claim a section 80TTB deduction up to the qualifying amount, subject to the section’s conditions and the overall return calculation. The threshold and the deduction do not automatically eliminate every tax obligation.
Tax-saving FD with other 80C investments
A taxpayer places ₹1,20,000 in an eligible five-year tax-saving FD but has already used ₹1,00,000 of the combined 80C, 80CCC and 80CCD(1) limit elsewhere. Only the remaining capacity, if any, can support an 80C deduction. The FD’s interest is still reported as taxable income.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to report FD interest in your return
- Identify the financial year. Separate interest credited or paid in FY 2025–26 from amounts belonging to another year. Keep the bank’s annual interest statement where available.
- Total every relevant FD. Include regular and tax-saving deposits, and include reinvested interest shown in the bank’s records.
- Reconcile withholding. Compare the total with Form 16A, Form 26AS and AIS. Investigate missing or duplicate entries with the bank.
- Enter the gross interest. Report the taxable interest under income from other sources rather than reporting only the net amount after TDS.
- Claim permitted deductions. If using the old regime, check whether you qualify for section 80TTB or an eligible section 80C investment deduction. Apply the combined limits and documentary conditions.
- Claim TDS credit. Use the amount actually reflected against your PAN. A mismatch can delay credit or a refund.
- Retain evidence. Keep FD receipts, statements, Form 16A and relevant tax-information records in case the return is questioned.
Tax-year transition from 1 April 2026
The law changes for relevant payments or credits from 1 April 2026. The Income Tax Act, 2025 governs those transactions, and the TDS provisions were reorganized. The Department says the TDS rates and monetary thresholds were retained, but the provision names and references may differ from those used for FY 2025–26.
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One free scan finds every outdated or missing driver and matches the right update for your exact hardware.Free scan · exact hardware matchWhen an FD interest credit or payment falls around the 31 March–1 April boundary, identify the date and the tax year first, then use the provision applicable to that transaction. Do not carry a FY 2025–26 citation into a later-year filing without checking the current wording.
Quick Recap
Common mistakes and fixes
- Mistake: treating no TDS as tax-free income. Fix: report the interest even when the bank withheld nothing.
- Mistake: reporting only the post-TDS amount. Fix: report gross interest and claim the withholding separately as TDS credit.
- Mistake: assuming a tax-saving label exempts interest. Fix: claim only the eligible investment deduction; include all interest in income.
- Mistake: claiming the full ₹1,50,000 when other 80C items already use the limit. Fix: calculate unused combined capacity before claiming the FD.
- Mistake: using section 80C under the new regime for AY 2026–27. Fix: compare regimes and select the one that legally permits the deduction.
- Mistake: relying on a generic withdrawal rule. Fix: read the current bank-specific tax-saving FD terms for lock-in, premature closure and access.
- Mistake: ignoring the 2026 law transition. Fix: classify interest credits or payments by date and apply the tax-year-appropriate provisions.
Practical checklist
- Record the bank and financial year for every FD.
- Calculate gross interest, including reinvested interest.
- Apply the correct FY 2025–26 TDS threshold: ₹40,000 for most payees or ₹50,000 for senior citizens.
- Check whether the bank calculated the threshold separately for each bank, as stated in Department guidance.
- Download Form 16A, Form 26AS and AIS before filing.
- Compare old- and new-regime outcomes for AY 2026–27.
- For a tax-saving FD, verify the scheduled-bank status, five-year term, unused 80C limit and bank-specific withdrawal rules.
- For a resident senior citizen, test section 80TTB eligibility and its ₹50,000 cap under the old-regime framework.
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