How FD Interest is Taxed in India
(FY 2026-27)
Yes, FD interest is fully taxable. It is added to your total income as "Income from Other Sources" and taxed at your applicable income tax slab. Banks also deduct TDS when your annual interest at a branch exceeds the prescribed threshold — but TDS is not the final tax.
Latest FD TDS Rules (FY 2026-27)
These thresholds apply per bank per year, aggregated across all your FDs at that institution under your PAN. Under the Income Tax Act 2025 (effective April 1, 2026), TDS on interest income is governed by Section 393 — the consolidated replacement for the old Section 194A.
FY 2025-26 vs FY 2026-27: What Changed?
| Rule | FY 2025-26 | FY 2026-27 |
|---|---|---|
| General TDS Limit | ₹50,000 | ₹50,000 |
| Senior Citizen TDS Limit | ₹1,00,000 | ₹1,00,000 |
| TDS Rate (with PAN) | 10% | 10% |
| TDS Rate (without PAN) | 20% | 20% |
| Governing Section | Section 194A (IT Act 1961) | Section 393 (IT Act 2025) |
| Nil-TDS Declaration Form | Form 15G / Form 15H | Form 121 NEW |
| Age-based Form Distinction | Yes (15G for <60, 15H for 60+) | No — single Form 121 for all |
| TDS Declaration Tracking | Form 26A | Form 149 NEW |
Old Forms Are Now Invalid
Form 15G and Form 15H are no longer valid from April 1, 2026. If you submitted them last year, you must submit Form 121 for FY 2026-27. Banks are required to reject old forms and deduct TDS if Form 121 has not been submitted.
How FD Interest Tax Actually Works
Many investors assume that once TDS is deducted, their tax obligation is complete. This is incorrect. TDS is only an advance deduction — your final tax liability is determined when you file your Income Tax Return (ITR).
Your actual tax on ₹75,000 interest depends on your total income slab:
TDS ≠ Final Tax
If ₹7,500 TDS was deducted but your actual liability is ₹22,500 (30% slab), you must pay the ₹15,000 difference via ITR. Conversely, if you're in the 5% slab, you can claim a ₹3,750 refund.
The FD Tax Flow: Step by Step
How Banks Calculate TDS: The Aggregation Rule
A critical — and commonly misunderstood — rule: TDS is applied on your total interest across all FDs at a bank under the same PAN, not on each FD individually.
Smart Tip: Spread Across Banks
Each bank calculates TDS independently. If your total FD interest across all banks is ₹1.5 lakh, spreading it across three banks (₹50,000 each for a general citizen) can legally avoid TDS at the source — though you still owe income tax on the full amount.
Tax on Cumulative FD: The Accrual Trap
Common Misconception
Many investors believe tax on a 3-year cumulative FD is only payable when they receive the money at maturity. This is wrong. Tax is payable every year on the interest that accrues, even if you don't receive it until maturity.
Example: ₹5 lakh, 3-year cumulative FD opened April 2026 at 7.5%
Year 1 Interest: ₹37,500 Taxable in ITR
Interest accrues. Bank may deduct TDS. Declare in this year's ITR even though you don't receive cash.
Year 2 Interest: ₹40,312 Taxable in ITR
Includes compounding on Year 1 interest. Again taxable in this year's ITR.
Maturity — Payout Received Cash Received
Year 3 interest also taxable in this year's ITR. TDS typically deducted at maturity on the full term's interest if not done annually.
Check Your AIS Each Year
The Annual Information Statement (AIS) on the income tax portal now shows accrued FD interest reported by banks each year — not just what was paid out. Use this to accurately report interest in your ITR and avoid notices.
👴 Senior Citizen? Compare SCSS (8.2%) vs FD rates for better monthly income.
SCSS Calculator →Form 121: The New Replacement for Form 15G & 15H
Form 121
Section 393(6) · Income Tax Act, 2025 · Effective April 1, 2026
Form 121 is a unified self-declaration form that replaces both Form 15G (for those under 60) and Form 15H (for senior citizens). It must be submitted to each bank/institution at the start of each financial year to prevent TDS when your total tax liability is nil.
- Form 15G — for individuals below 60
- Form 15H — for senior citizens (60+)
- Two separate forms based on age
- Different eligibility conditions
- Tracked via Form 26A
- Form 121 — single form for all ages
- No age-based distinction
- 26-character Unique ID per declaration
- Tracked via new Form 149
- Old forms invalid from April 1, 2026
How to Submit Form 121:
Add up salary, pension, FD interest, rent, dividends. Subtract deductions. If net taxable income = nil, you are eligible.
Form 121 must be filed with every bank where you hold FDs — it does not apply across institutions. Submit via net banking, mobile app, or branch.
For monthly-payout FDs, submit in April before the first credit. TDS already deducted cannot be prevented — you'd need to claim a refund via ITR.
Form 121 is valid for one Tax Year only. Submit a fresh form at the start of each financial year.
FD Interest Tax Calculator (FY 2026-27)
Estimate your TDS applicability and approximate income tax on FD interest.
FD Interest Tax Estimator
For indicative purposes only
FD Tax in Practice: Real-World Scenarios
Salaried Employee — Mid Income
Tax: ₹50,000 interest taxed at 20% = ₹10,000. Additional ₹5,000 payable via ITR.
Action: Report FD interest in ITR. Pay balance tax. Cannot submit Form 121 as tax liability is not nil.
Retired Senior Citizen — Low Income
Tax: ₹3,90,000 falls within basic exemption + standard deduction benefits; tax may be nil.
Action: Submit Form 121 to prevent TDS. File ITR to confirm nil liability.
High-Income Professional
Tax: ₹2,00,000 interest taxed at 30% = ₹60,000. Additional ₹40,000 payable via ITR.
Action: Always declare FD interest. Consider spreading FDs or investing in tax-efficient alternatives.
Tax-Saving Tips for FD Investors
Each bank calculates TDS independently on your aggregated interest there. Splitting deposits can keep per-bank interest below the TDS threshold, though you still owe income tax on the total.
If your total taxable income is nil, submit Form 121 in April before the first interest credit. Available via net banking for most major banks.
The ₹1,00,000 TDS threshold (vs ₹50,000 for general citizens) and higher FD rates make FDs particularly efficient for retirees with lower total income.
SCSS at 8.2% with an 80C deduction (old regime) can be more tax-efficient than a bank FD at 7.5% without the deduction. For eligible investors, SCSS wins on both rate and tax treatment.
Tax-saving FDs (5-year lock-in) allow up to ₹1.5 lakh deduction under 80C in the old regime. However, interest earned is still fully taxable — only the principal investment is deductible.
Don't wait for maturity. Declare cumulative FD interest annually as it accrues to avoid large tax bills + interest on underpayment in the maturity year.
Common Mistakes FD Investors Make
Ignoring FD Interest in ITR
Even without TDS, all FD interest must be declared in your ITR. Non-disclosure can trigger tax notices and penalties.
Assuming TDS = Final Tax
TDS is an advance deduction, not final settlement. You may owe more or get a refund when filing ITR.
Not Checking AIS Annually
Banks report accrued interest to the IT department. Your AIS will show this. Mismatches invite scrutiny.
Forgetting Accrued Interest
Cumulative FD investors often forget to declare year-on-year accruals. This creates a tax spike at maturity.
Submitting Form 15G/15H in 2026
These forms are invalid from April 1, 2026. Only Form 121 is accepted under the IT Act 2025.
Wrong Tax Regime Assumptions
Under the new regime, deductions like 80TTA/80TTB (savings interest) are not available. Choose regime wisely before filing.
Frequently Asked Questions
AI & Search Summary
Fixed Deposit (FD) interest in India is fully taxable as "Income from Other Sources" and added to the investor's total annual income, taxed at the applicable slab rate. For FY 2026-27, under Section 393 of the new Income Tax Act 2025, banks deduct TDS at 10% when annual FD interest at a single institution exceeds ₹50,000 (general citizens) or ₹1,00,000 (senior citizens). TDS is an advance deduction, not the final tax; investors must declare all FD interest in their ITR. From April 1, 2026, Form 121 — a unified self-declaration under the IT Act 2025 — replaces the old Form 15G and Form 15H. Eligible taxpayers (those with nil tax liability) must submit Form 121 to each bank to prevent TDS. Cumulative FD interest is taxable on an annual accrual basis, not only at maturity.
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