Tax on FD Interest in India FY 2026-27: TDS Rules, 80TTA vs 80TTB, ITR Reporting

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In short: Fixed Deposit interest is fully taxable at your slab rate as “Income from Other Sources.” There is no special exemption for FD interest under the new tax regime, and only seniors get partial relief under the old regime via Section 80TTB. Banks deduct 10% TDS once your annual interest from that branch crosses Rs 40,000 (Rs 50,000 for seniors) — or 20% if you have not provided PAN. TDS is not your final tax; you must declare the full FD interest in ITR and may owe additional tax (or get refund) based on your slab. Section 80TTA gives only Rs 10,000 on savings interest (not FD). Section 80TTB gives seniors Rs 50,000 covering both savings and FD interest combined.

FD Interest Is Fully Taxable

Unlike PPF, EPF, or tax-saving FD principal (under 80C), the interest earned on regular FDs is fully taxable. It is added to your total income under the head “Income from Other Sources” and taxed at your applicable slab rate. There is no exemption for FD interest under Indian tax law except the limited Section 80TTA/80TTB carve-outs explained below.

When TDS Is Deducted

Under Section 194A, banks must deduct TDS on FD interest once the annual interest paid from that branch crosses:

• Rs 40,000 for individuals below 60 years
• Rs 50,000 for senior citizens (60+)

TDS rate is 10% if you have provided your PAN, 20% if PAN is missing or inoperative. The TDS is deposited under your PAN, visible in AIS and Form 26AS within 30-45 days.

TDS Is Not Final Tax

A common mistake: assuming that because the bank deducted 10% TDS, your tax obligation is over. It is not. TDS is just an advance collection. Your actual tax liability depends on your slab:

• If you are in 5% slab: 10% TDS was over-deducted. You claim Rs 5% back as refund via ITR.
• If you are in 20% slab: 10% TDS was under-deducted. You owe an additional 10% as self-assessment tax.
• If you are in 30% slab: 10% TDS was under-deducted by 20%. Big additional tax due.
• If income is below exemption: 10% TDS should not have been deducted. Submit Form 15G/15H next year, claim refund this year.

Section 80TTA vs 80TTB

Key insight: Section 80TTA does not cover FD interest. So if you are below 60 and old regime, you cannot deduct any FD interest. The Rs 10,000 deduction applies only to savings bank interest (typically Rs 3,000-8,000 a year for most people).

Worked Example — ₹5L FD at 7%

Suppose you (age 35, 20% slab, old regime) have a 5-year FD of Rs 5,00,000 at 7% interest.

• Annual interest accrued: Rs 35,000
• Bank TDS deducted: Rs 0 (interest under Rs 40K threshold)
• Your tax liability: Rs 35,000 x 20% = Rs 7,000
• Plus 4% cess: Rs 280
• Total tax on FD interest: Rs 7,280

Now suppose you have two FDs of Rs 5L each, total interest Rs 70,000:

• Bank TDS deducted: Rs 7,000 (10% of Rs 70,000)
• Your tax liability: Rs 70,000 x 20% = Rs 14,000 plus cess Rs 560 = Rs 14,560
• Additional tax due: Rs 14,560 – Rs 7,000 (TDS) = Rs 7,560 self-assessment tax

Senior Citizen — Same ₹5L FD

Senior at 60+ with the same Rs 5L FD at 7% (Rs 35,000 interest):

• Section 80TTB deduction: Rs 35,000 (entire FD interest, within Rs 50K cap)
• Taxable FD interest: Rs 0

If interest is Rs 60,000, Rs 50,000 is exempt under 80TTB, only Rs 10,000 is taxed. Combined with 87A rebate, many seniors pay zero tax up to substantial pension+FD income.

New Regime: No 80TTA, No 80TTB

Both Section 80TTA and Section 80TTB are available only under the old regime. If you choose the new regime, FD interest is fully taxable from rupee one. However, the new regime has a Rs 12L rebate under Section 87A, which often results in zero tax up to Rs 12L total income (for FY 2026-27). Compare both regimes via our old vs new regime calculator.

Cumulative vs Quarterly Compounding — Tax Timing

Most banks offer two FD options:

• Cumulative: Interest accrues but is paid only at maturity. TDS is deducted in the year of accrual (annually), based on interest credited to your FD account each year.
• Non-cumulative (quarterly/monthly payout): Interest paid to your savings account each quarter or month. TDS deducted at the time of each payment.

The tax liability is the same either way — interest is taxed in the year of accrual regardless. The Bank's TDS reporting matches this accrual pattern.

Reporting FD Interest in ITR

1. Check AIS and Form 26AS for all FD interest entries. See AIS reconciliation guide.
2. Add FD interest from all banks under “Schedule OS” (Income from Other Sources) in ITR-1 or ITR-2.
3. Claim TDS already deducted as credit against your tax liability.
4. If 80TTA/80TTB applicable (old regime), claim under “Schedule VI-A” deductions.
5. Pay any additional tax as self-assessment tax before filing.

Common Mistakes

Not reporting FD interest because TDS was deducted

The most common error. TDS deducted does not mean your tax is complete. You owe additional tax if your slab is higher than 10%, or are due refund if lower. Failing to report leads to notice.

Claiming 80TTA on FD interest

80TTA covers only savings bank interest, not FD. Many taxpayers mistakenly claim and trigger scrutiny.

Forgetting Form 15G/15H

If your total income is below exemption, submit 15G/15H every April to stop unnecessary TDS deduction. See our 15G/15H guide.

FAQs

Is FD interest taxable even if I do not withdraw it?

Yes — interest is taxable on accrual, not withdrawal. Even cumulative FDs where interest is credited but not paid out are taxable each year.

Is interest from tax-saving FD (under 80C) tax-free?

No. The principal qualifies for 80C deduction (Rs 1.5L cap including other 80C items), but the interest is still fully taxable.

Can I split FDs across banks to avoid TDS?

You can, and it works at the TDS level (since each bank checks only its own Rs 40K threshold). But your tax liability does not change — you must aggregate all FD interest in ITR and pay tax accordingly. The split only avoids upfront TDS deduction.

What about FD interest in NRO accounts?

NRO FD interest is taxable in India at 30% flat (regardless of slab). Banks deduct 30% TDS irrespective of amount. NRIs can claim DTAA benefits to reduce this.

Sources

• Income Tax Act, Section 194A — TDS on interest
• Section 80TTA — Savings interest deduction
• Section 80TTB — Senior citizen interest deduction
• Section 87A — Tax rebate