Tax Deductions on FDs: What You Need To Know Before Investing?

Updated on: 16 Apr 2025

Understanding the TDS on the interest of fixed deposits is an important aspect of calculating your total earned interest. It also directly impacts your total earnings, which is important when you are investing.

Here is everything you should know about TDS on fixed deposit interest and how much fixed deposit interest is tax-free to plan your investments smartly.

How TDS is Calculated on FD Interest?

The interest from FD returns is completely taxable as it is calculated as a part of your net annual income. Therefore, the issuer will deduct 10% from your total interest earned before directing it to your bank account along with the capital deposit.

This rate only applies if you have provided a PAN card at the time of application. In the absence of a PAN card, the TDS deducted on FD is 20%.

Also Read: Tax Benefits on an Education Loan

Exemption for Tax Deduction

While the taxation on fixed deposits is applicable to all investors, it applies only after a threshold amount. Here is the exception list and the criteria.

Threshold Limit	Criteria
₹40,000	Citizens under 60 years of age
₹50,000	Citizens over 60 years of age

If your total interest from all FDs exceeds this limit, you must pay TDS. Otherwise, you can enjoy tax-free interest.

Also Read: Guide on Calculation Of Tax

Example of Tax Deduction at Source

To better understand how much TDS is deducted on FD interest, consider an example. Assume you have four deposits, all accumulating different amounts of interest.

FD 1: ₹45,000
FD 2: ₹25,000
FD 3: ₹1,000
FD 4: ₹7,000

In this case, only the first FD surpasses the threshold limit. Thus, you only have to pay tax on the additional ₹5,000 on the first FD. However, you will not pay any tax if you are a senior citizen, as the threshold limit is ₹50,000 for depositors over 60 years.

Also Read: Tax Benefits While Availing a Personal Loan

How to Save on Paying Tax on FD Earnings?

Now that you know how much fixed deposit interest is tax-free, you can calculate your investment amount to keep it under the threshold limit. This is one way to avoid paying TDS on your FD returns.

Another way is to invest in tax-saving FD, which allows you to claim a deduction of up to ₹1.5 lakh on your investment. This way, you can earn maximum interest without worrying about taxation. However, know that this comes with a lock-in period of 5 years.

If you have an annual income under ₹3 lakhs, you can also submit Form 15G to avoid paying tax on FD interest. Similarly, Form 15H is applicable for senior citizens. If you don’t fall under any of the criteria, you are liable for a TDS deduction on FD.

In conclusion, you must pay tax on all your income. Whether it is active, like a job or business, or passive, like FD investments. However, you don’t need to pay any taxes when you get funds via loan. This makes it an ideal solution when you know your exact financial needs.

Thus, if you need a fixed amount for any personal requirement, consider applying for the Fibe Instant Personal Loan. We offer ₹5 lakhs with minimum documentation and swift approval. Apply now on our Personal Loan App or website to enjoy loans at affordable interest rates with zero foreclosure charges.

FAQs on TDS on FD Interest

Is the interest earned on fixed deposits taxable in India?

Yes, banks and financial institutions deduct TDS on interest of fixed deposit before disbursing the funds to your account. This is done after the tenure is complete.

How much interest from fixed deposits is tax-free?

If your interest is under ₹40,000 in a year, the issuer will not deduct TDS as per section 194A of the Income Tax Act.

What is the TDS limit for senior citizens on fixed deposits?

This limit for tax-free interest for senior citizens is ₹50,000 in a year.

Can I claim a tax deduction on the principal amount invested in fixed deposits?

Yes, it is allowed under Section 80C of the Income Tax Act. As per this section, you can claim up to ₹1.5 lakh each financial year as a deduction.

Will TDS be deducted if I hold multiple FDs across different banks?

The TDS deduction on FD is calculated for net income from all the accounts individually. In case you hold multiple FDs, you need to submit Form 15G or Form 15H for all issuers to avoid deductions.

What is the penalty for not paying taxes on FD interest?

If your bank or financial institution does not deduct TDS on fixed deposits, you are still liable to pay tax on the total interest you earn. If you do not do so, you will need to pay up to 300% of the tax evaded as per Section 271(C) of the IT Act.