Fixed-deposit (FD) interest is taxable income for an Indian resident. Tax deducted at source (TDS) is only an advance withholding by the bank; it does not decide whether you ultimately owe tax, and interest below the TDS limit is not automatically tax-free.
The governing rule depends on when the bank credits or pays the interest. Amounts credited or paid up to 31 March 2026 fall under the Income-tax Act, 1961. Amounts credited or paid from 1 April 2026 are governed by the Income-tax Act, 2025. In the new Act, resident bank, banking-cooperative and qualifying post-office deposit interest triggers TDS when the applicable aggregate exceeds ₹50,000 for a person other than a senior citizen or ₹1,00,000 for a senior citizen. Once the limit is crossed, the Act requires deduction on the entire applicable amount, at the earlier of credit or payment.
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The rule in one view
| Question | Answer |
|---|---|
| Is FD interest taxable? | Yes. Report the interest as income even when the bank did not deduct TDS. |
| Which law applies to interest through 31 March 2026? | The Income-tax Act, 1961, using the rules applicable to the payment or credit date. |
| Which law applies from 1 April 2026? | The Income-tax Act, 2025. Section 393(1), table item 5(ii), contains the relevant resident-deposit TDS rule. |
| What is the 2026–27 TDS trigger? | Aggregate covered interest above ₹50,000 for a non-senior and above ₹1,00,000 for a senior citizen. |
| Does crossing the limit mean only the excess is withheld? | No. Under the 2025 Act rule, deduction applies to the entire applicable amount once the threshold is exceeded. |
| Is the TDS threshold a tax exemption? | No. It only determines when the bank withholds tax. |
This article addresses resident taxpayers and bank fixed deposits. A different rule set may apply to non-residents, securities interest, or unusual deposit arrangements.
Choose the correct tax law by the credit or payment date
The transition is based on the earlier of the date the interest is credited and the date it is paid. A bank can credit interest to an account or reinvest it in a cumulative FD even when you do not withdraw cash. That credit date matters for identifying the governing Act.
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| Interest credit or payment | Governing framework | Practical action |
|---|---|---|
| On or before 31 March 2026 | Income-tax Act, 1961 | Apply the TDS and return rules that were in force under the 1961 Act for that credit or payment. |
| On or after 1 April 2026 | Income-tax Act, 2025 | Apply section 393 and the tax-year 2026–27 provisions where relevant. |
Do not apply the ₹50,000 and ₹1,00,000 limits backward to an interest credit made under the earlier Act. Keep the bank statement or FD advice showing the credit date so you can support the treatment used in your return.
Why FD interest is taxable even when there is no TDS
TDS is a collection mechanism, not a definition of taxable income. The return guidance treats interest from deposits as reportable interest income. Therefore, a ₹40,000 interest amount with no TDS still has to be considered in your return and combined with your other income under the tax rules applicable to you.
Your final liability depends on your total income, deductions and the tax regime for which you are eligible. The bank generally cannot determine that final liability because it does not know all of your salary, business income, capital gains, deductions or other taxes. Conversely, a bank’s failure to deduct TDS does not prove that no tax is payable.
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Interest below the withholding limit
Suppose a non-senior resident receives ₹45,000 of covered FD interest during the relevant period from 1 April 2026. The amount is below the ₹50,000 TDS trigger, so the bank may not withhold under that provision. The ₹45,000 remains reportable interest income. “No TDS” and “no tax” are different conclusions.
Interest credited without a cash withdrawal
For a cumulative FD, interest can be credited or compounded by the bank rather than paid into your savings account. That does not make it invisible for tax reporting. Use the interest schedule in the FD advice, account statement or passbook to identify the amount credited for the relevant period.
How the TDS threshold works from 1 April 2026
Section 393(1), table item 5(ii), of the Income-tax Act, 2025 covers interest other than interest on securities when it is paid by a banking company, a cooperative society carrying on banking, or a post office under a government-notified deposit scheme. For a resident recipient, the limits are:
| Recipient | Aggregate covered interest limit | What happens when the limit is exceeded |
|---|---|---|
| Person other than a senior citizen | ₹50,000 | TDS is deducted on the entire applicable amount, not only the amount above ₹50,000. |
| Senior citizen | ₹1,00,000 | TDS is deducted on the entire applicable amount, not only the amount above ₹1,00,000. |
The test is on the applicable aggregate interest, so do not examine every FD in isolation. Add the covered interest records relevant to the bank’s calculation and check how the bank has treated multiple deposits or accounts. Interest on securities is outside this particular table item; do not extend the deposit rule to every kind of interest payment.
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The deduction point is the earlier of credit or payment. If a bank credits annual interest on 31 March and pays or transfers it later, the credit can be the operative event. If it pays interest before a scheduled credit, the payment date can control. Confirm the event date in the bank’s certificate when a transaction falls near 31 March or 1 April.
What “entire amount” means
Once the applicable threshold is exceeded, the statute does not limit withholding to the excess. For example, if a non-senior’s covered interest is ₹65,000 under the 2025 Act, the bank’s deduction is calculated on ₹65,000, subject to the applicable rate and other statutory details. This withholding is later credited to the taxpayer and can be reconciled in the return; it is not a separate final tax calculation.
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How the 31 March 2026 transition can affect your records
Interest credited or paid by 31 March 2026 remains under the Income-tax Act, 1961. Interest credited or paid from 1 April 2026 moves to the corresponding provision in the Income-tax Act, 2025, whose new section number for this withholding rule is 393. A single FD can therefore produce records governed by different Acts if its credits fall on opposite sides of the transition date.
Retain the bank’s year-wise interest statement rather than relying only on the FD’s original principal and maturity date. The principal date does not by itself settle which Act applies to each interest credit.
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Senior citizens: the ₹1,00,000 TDS limit and the separate 80TTB deduction
Two different benefits are often confused:
- TDS threshold: From 1 April 2026, the threshold for a senior citizen under section 393(1), table item 5(ii), is ₹1,00,000 of applicable aggregate covered interest.
- Section 80TTB deduction: For assessment year 2026–27, the Income Tax Department describes a deduction of up to ₹50,000 for an eligible senior citizen’s interest on deposits with banks, post offices or cooperative banks, including FD interest.
The first rule tells the bank when to withhold. The second can reduce eligible income when you prepare the return. A person can be below the ₹1,00,000 TDS threshold and still need to report the interest; alternatively, TDS can be deducted even though an eligible deduction later reduces the final tax. Check eligibility and the applicable return regime before claiming section 80TTB. It is not a deduction available automatically to every depositor.
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Senior-citizen example
An eligible senior citizen with ₹90,000 of covered FD interest from the relevant 2026–27 period is below the ₹1,00,000 TDS threshold. The ₹90,000 must still be reported as interest income. If the individual meets section 80TTB conditions, up to ₹50,000 may be claimed as the separate deduction described for assessment year 2026–27. The two figures answer different questions.
Can you stop TDS with a declaration?
For the Income-tax Act, 2025, the Income Tax Department describes a written declaration under section 393(6) for a recipient whose estimated total income for the tax year will bear no tax. This is the successor framework corresponding to the Forms 15G/15H mechanism.
The declaration is conditional. It is not a universal waiver for anyone with an FD, and submitting one does not make the interest non-taxable. Use it only if you satisfy the statutory conditions and the current filing instructions. If your estimated total income would bear tax, do not use a declaration merely to keep the bank from withholding.
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How to report FD interest and reconcile TDS
Use a repeatable record-checking process each year:
- Collect the source records. Download the bank’s interest certificate or annual statement and keep every FD receipt, maturity advice and passbook or account statement. The Income Tax Department’s ITR-2 FAQ specifically points taxpayers to passbooks and fixed-deposit receipts for calculating interest.
- Separate the periods. Mark credits or payments on or before 31 March 2026 and those from 1 April 2026, because the governing Acts differ.
- Calculate the reportable interest. Include interest credited or paid on the covered deposits for the relevant return period, including amounts reinvested rather than withdrawn.
- Check the bank’s TDS calculation. For 2026–27, compare the covered aggregate with ₹50,000 or ₹1,00,000 according to your status. If the limit is exceeded, expect withholding on the full applicable amount.
- Match documents. Where TDS was deducted, retain Form 16A and compare the amount with Form 26AS. Resolve a mismatch with the bank before filing or report the amount according to the official tax-credit information and applicable procedure.
- Enter the income in the correct return. The official AY 2026–27 ITR-1 schedule identifies interest from bank, post-office and cooperative-society deposits as interest income. Use the ITR form that fits your complete circumstances; the deposit schedule alone does not establish that ITR-1 is available to you.
Worked scenarios
| Scenario | TDS result under the stated rule | Return treatment |
|---|---|---|
| Non-senior resident, ₹42,000 covered interest, credit from 1 April 2026 | Below ₹50,000; this provision does not trigger TDS. | Report ₹42,000 as interest income; no-TDS status does not create an exemption. |
| Non-senior resident, ₹65,000 covered interest, credit from 1 April 2026 | Threshold exceeded; deduction applies to the full ₹65,000 under section 393’s rule. | Report the interest and claim the verified TDS credit shown in Form 16A and Form 26AS. |
| Senior citizen, ₹90,000 covered interest, credit from 1 April 2026 | Below the ₹1,00,000 senior threshold; this provision does not trigger TDS. | Report ₹90,000. If eligible, consider the separate section 80TTB deduction up to ₹50,000 for AY 2026–27. |
| Senior citizen, ₹1,20,000 covered interest, credit from 1 April 2026 | Threshold exceeded; deduction applies to the full applicable amount. | Report ₹1,20,000 and reconcile the withholding. Any 80TTB claim remains a separate eligibility question. |
These examples show the withholding trigger only. They do not calculate final tax, because that requires the taxpayer’s total income, deductions, residency and applicable tax regime.
Quick Recap
Common mistakes and how to correct them
- Calling interest below ₹50,000 tax-free: Correct the return calculation and include the interest as income even when no TDS appears.
- Using the 2026–27 thresholds for an earlier credit: Check whether the interest was credited or paid by 31 March 2026. That transaction remains under the 1961 Act.
- Expecting TDS only on the excess: Under the 2025 Act rule, crossing the threshold leads to deduction on the entire applicable amount.
- Confusing 80TTB with TDS: Record the withholding threshold and the senior-citizen deduction as separate calculations.
- Ignoring reinvested interest: Interest added to a cumulative FD is still part of the bank’s interest records. Use the certificate or FD schedule.
- Filing without checking tax credit: Compare Form 16A with Form 26AS and ask the bank to correct a mismatch.
- Submitting a declaration without qualifying: Section 393(6) declarations are conditional. Verify that your estimated total income will bear no tax and follow current instructions before using the mechanism.
- Choosing an ITR form solely because you have an FD: Deposit interest may appear in ITR-1, but the correct form depends on all of your income and circumstances.
A practical checklist before filing
- Confirm whether each interest credit or payment occurred by 31 March 2026 or from 1 April 2026.
- Identify whether you are treated as a senior citizen for the applicable tax year.
- Add the covered interest amounts used for the bank’s TDS test instead of checking only one FD.
- Report all FD interest, including amounts for which no TDS was deducted.
- Keep FD receipts, passbooks, interest certificates, Form 16A and Form 26AS together.
- Evaluate section 80TTB separately if you are an eligible senior citizen filing for AY 2026–27.
- Use a written no-tax declaration only when section 393(6) conditions and current instructions are satisfied.
- Do not infer your final tax bill from the TDS amount; calculate it using your complete income and applicable regime.
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