Fixed deposits (FDs) remain one of the most popular investment instruments for Indian investors due to their safety and assured returns. However, the interest earned on FDs is not entirely tax-free. Tax Deducted at Source (TDS) is applicable on FD interest when it exceeds prescribed limits. Understanding how much TDS applies on FD interest in 2025 is crucial for accurate tax planning and compliance.
What is TDS on FD interest?
TDS on FD interest refers to the tax amount that banks or financial institutions deduct directly from the interest income before crediting it to the investor’s account. This deduction ensures upfront tax collection and reduces the burden of tax evasion. The deducted amount is then deposited with the government against the investor’s Permanent Account Number (PAN).
Current TDS threshold for FD interest in 2025
The Income Tax Act specifies thresholds beyond which TDS becomes applicable on FD interest income:
For individuals below 60 years:
- TDS applies if total FD interest exceeds Rs. 40,000 in a financial year.
For senior citizens (60 years and above):
- The TDS threshold is higher at Rs. 50,000 in a financial year.
If the interest remains within these limits, no TDS is deducted automatically by the bank or financial institution.
TDS rates applicable in 2025
The applicable TDS rates on FD interest in 2025 are as follows:
- 10% if PAN is submitted and valid
- 20% if PAN is not provided or is invalid
- Surcharge and cess may apply additionally for certain high-income individuals, though usually not deducted at source
It is important to note that TDS is deducted only on the amount exceeding the prescribed threshold.
TDS calculation example for non-senior citizen
Consider an individual below 60 years with the following details:
- Total FD interest earned: Rs. 65,000
- Threshold limit: Rs. 40,000
Taxable interest for TDS = Rs. 65,000 – Rs. 40,000 = Rs. 25,000
TDS at 10% = 10% of Rs. 25,000 = Rs. 2,500
Thus, Rs. 2,500 will be deducted as TDS by the bank and the remaining Rs. 62,500 will be credited to the account.
TDS calculation example for senior citizen
Consider a senior citizen earning:
- Total FD interest earned: Rs. 70,000
- Threshold limit: Rs. 50,000
Taxable interest for TDS = Rs. 70,000 – Rs. 50,000 = Rs. 20,000
TDS at 10% = 10% of Rs. 20,000 = Rs. 2,000
In this case, Rs. 2,000 will be deducted as TDS and Rs. 68,000 will be credited to the account.
Submission of Form 15G and 15H to avoid TDS
To avoid TDS deduction, eligible individuals can submit self-declaration forms:
- Form 15G: For individuals below 60 years whose total income is below the taxable limit.
- Form 15H: For senior citizens whose total income is below the taxable limit.
By submitting these forms, investors declare that their total income falls below the basic exemption limit, thereby preventing unnecessary TDS deduction.
Tax treatment of FD interest under income tax
FD interest income is categorised as “Income from Other Sources” and taxed as per applicable income tax slabs. Even if TDS is deducted, taxpayers must report the full interest income while filing returns and pay any balance tax or claim refunds as applicable.
For example, if an individual’s total annual income, including Rs. 65,000 FD interest, crosses the basic exemption limit, the FD interest will be taxed according to their slab rate, irrespective of the TDS already deducted.
Filing tax returns and claiming TDS credit
The TDS deducted on FD interest appears in Form 26AS and the Annual Information Statement (AIS) of the taxpayer. While filing the Income Tax Return (ITR), the taxpayer must declare the full FD interest income and adjust the tax liability by claiming the TDS credit already deducted.
If excess TDS is deducted compared to the actual tax liability, a refund can be claimed from the Income Tax Department after assessment.
Consequences of not linking PAN
Failure to provide a valid PAN leads to TDS deduction at a higher rate of 20% under Section 206AA of the Income Tax Act. This can lead to substantial deductions even when actual tax liability is lower. Therefore, linking PAN with the bank account is essential to ensure TDS deduction at the correct rate.
Impact of multiple FDs across banks
The TDS threshold of Rs. 40,000 or Rs. 50,000 is calculated per bank or financial institution, not on the cumulative interest across all banks. However, while filing the ITR, the taxpayer must aggregate the entire FD interest income from all sources and report the total for tax computation.
For example, if an individual earns Rs. 30,000 FD interest from Bank A and Rs. 35,000 from Bank B, neither bank may deduct TDS as each falls below the Rs. 40,000 limit. However, the total interest of Rs. 65,000 must be reported as taxable income.
Summary
The TDS on FD interest in 2025 continues to follow the established thresholds of Rs. 40,000 for individuals and Rs. 50,000 for senior citizens. TDS is deducted at 10% on the interest exceeding these thresholds, provided PAN is furnished. For instance, if a non-senior citizen earns Rs. 65,000 interest, Rs. 2,500 will be deducted as TDS , leaving a net credit of Rs. 62,500. Forms 15G and 15H provide relief for individuals with income below taxable limits. It remains essential to include the entire FD interest in the income tax return and claim credit for TDS deducted. Missing PAN linkage results in 20% TDS deduction, emphasising the importance of providing valid documentation. Accurate reporting ensures tax compliance while avoiding unnecessary deductions and penalties.
Disclaimer: This article is intended for informational purposes only. Individuals must carefully assess all advantages, disadvantages and risks before participating or investing in the Indian financial market.
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