- 30-Apr-2025
- Personal Injury Law
Income from Fixed Deposits (FDs) in India is subject to taxation under the Income Tax Act, 1961. The interest earned on fixed deposits is considered income and is taxable under the head Income from Other Sources. Additionally, fixed deposit interest is subject to Tax Deducted at Source (TDS) if it exceeds a certain threshold, and there are also provisions for deductions on interest income under specific sections.
Interest Income from fixed deposits is added to your total income and taxed according to the applicable income tax slab.
Fixed deposit interest is taxable in the year it is credited or received, even if it is not withdrawn.
For Example:
If an individual has a fixed deposit earning ₹1,00,000 in interest for a financial year, the entire ₹1,00,000 is added to their total taxable income, and they will be taxed according to their income tax slab.
Banks or financial institutions deduct TDS on fixed deposit interest if the total interest income from all FDs exceeds ₹40,000 (for individuals below 60 years) or ₹50,000 (for senior citizens aged 60 or above) in a financial year.
TDS Rate: The rate of TDS is 10% if the interest exceeds the threshold limit. For senior citizens, the TDS rate is reduced to 7.5% (in some cases). If the individual has not provided their PAN number, the TDS rate increases to 20%.
Example:
Mr. Sharma has earned ₹45,000 in interest from his fixed deposits in a financial year. Since the total interest exceeds ₹40,000, the bank will deduct ₹4,500 (10% of ₹45,000) as TDS before crediting the interest to his account.
Senior Citizens (60 years and above) can avail of a higher exemption limit. The TDS threshold for senior citizens is ₹50,000.
If a senior citizen's fixed deposit interest exceeds ₹50,000, TDS will be deducted as per the applicable rate.
For Non-Residents (NRIs), the TDS rate on fixed deposit interest is 30%, subject to the provisions of the Double Taxation Avoidance Agreement (DTAA) if applicable.
If the total income of an individual is below the taxable limit (i.e., no tax liability), the taxpayer can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) to the bank to avoid TDS on fixed deposit interest.
These forms certify that the individual’s income is below the taxable threshold and no TDS should be deducted.
Under Section 80TTA, individuals can claim a deduction of up to ₹10,000 on interest income earned from savings accounts, including the interest earned on fixed deposits with a bank or post office.
However, this deduction is not applicable on interest from fixed deposits with financial institutions (other than banks and post offices).
Example:
If Mr. Gupta earns ₹8,000 interest from his savings account and ₹15,000 from his fixed deposits, he can claim a deduction of ₹8,000 (the interest from his savings account) under Section 80TTA, but not for the fixed deposit interest.
In the case of joint fixed deposits, the interest is taxed in the hands of the person who owns the fixed deposit and receives the interest.
If both individuals are receiving interest from the FD, they can declare the interest income according to their share in the FD.
If the first holder of the FD is a senior citizen, the TDS exemption limit of ₹50,000 applies.
Cumulative Fixed Deposits do not pay interest periodically (monthly/quarterly). Instead, the interest is compounded and paid at the end of the FD tenure. While the interest is still taxable, there is no TDS deducted if the interest is not paid out regularly. However, the interest will be taxed as part of the total income in the year it is received.
Some banks or financial institutions offer tax-free FDs where the interest earned is exempt from tax. These are rare and typically available for specific purposes, such as infrastructure bonds.
If TDS has been deducted, but your total income is below the taxable threshold, you can file an income tax return to claim a refund of the TDS amount.
Mr. Mehra has a fixed deposit of ₹5,00,000 with an interest rate of 6% per annum. The interest earned in a year would be:
Since Mr. Mehra's total interest income from his FD is below ₹40,000, no TDS will be deducted. The interest income of ₹30,000 will be added to his total income and taxed as per his income tax slab.
If Mr. Mehra’s total income exceeds ₹2.5 lakh, this ₹30,000 will be taxed at the applicable rate. For example, if he falls under the 10% tax bracket, the tax on this income will be ₹3,000.
Income from fixed deposits is taxed under the head Income from Other Sources and is subject to Tax Deducted at Source (TDS) if the interest exceeds certain thresholds. Fixed deposit interest income is fully taxable according to the individual's income tax slab, and individuals can claim deductions under Section 80TTA for interest earned from savings accounts. Senior citizens can also benefit from higher TDS exemptions. It’s important to keep track of interest income, claim applicable deductions, and file returns to adjust TDS, if applicable.
Answer By Law4u Team
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