Fixed deposits remain one of the most trusted investment options for Indian savers due to stability and predictable returns. However, many investors ignore one crucial factor — taxation. Interest earned from fixed deposits is fully taxable, and misunderstanding tax rules often leads to lower returns, unexpected deductions, or compliance issues. Understanding tax on FD interest 2026 helps investors plan better and avoid unnecessary tax leakage.
In 2026, with stricter reporting and better data matching between banks and tax authorities, FD interest income is closely tracked. Knowing how TDS works, when to submit declarations, and how to manage tax liability ensures smarter investment decisions and smoother tax filing.
Here is a simple guide to FD interest taxation, TDS rules, and correct use of Form 15G and Form 15H.
Is Fixed Deposit Interest Taxable
Interest earned from fixed deposits is fully taxable under “Income from Other Sources.”
Important points:
-
FD interest is added to total income
-
Taxed as per individual tax slab
-
Applies to bank and post office FDs
-
Applies to cumulative and non-cumulative FDs
Even if interest is not withdrawn, it remains taxable.
How FD Interest Is Calculated for Tax
Banks calculate interest earned during the financial year, not just maturity value.
Types of FD interest:
-
Quarterly payout FD
-
Monthly payout FD
-
Cumulative FD (reinvested interest)
In cumulative FDs, interest is taxed yearly even if received later.
TDS on Fixed Deposit Interest
Tax Deducted at Source (TDS) is applied when FD interest exceeds specified limits.
TDS rules include:
-
Bank deducts tax before paying interest
-
TDS does not mean final tax liability
-
Actual tax depends on income slab
Understanding TDS helps avoid confusion during tax filing.
TDS Threshold Limits
TDS is deducted only when interest crosses certain limits.
| Category | TDS Threshold |
|---|---|
| Regular individuals | ₹40,000 per year |
| Senior citizens | ₹50,000 per year |
If interest exceeds the limit, TDS is applied on full interest.
TDS Rate on FD Interest
The TDS rate depends on PAN availability.
Standard TDS rates:
-
With PAN: 10%
-
Without PAN: 20%
Providing PAN prevents higher deduction.
Why TDS Is Not Final Tax
Many investors assume TDS settles tax liability. This is incorrect.
Important facts:
-
TDS is advance tax collection
-
Final tax depends on income slab
-
Additional tax may be payable
-
Refund possible if excess TDS deducted
Always calculate actual tax liability.
When to Use Form 15G and Form 15H
Eligible individuals can submit declarations to avoid TDS deduction.
Purpose of forms:
-
Declare income below taxable limit
-
Prevent unnecessary tax deduction
-
Improve cash flow
Forms must be submitted at beginning of financial year.
Form 15G Eligibility
Form 15G is for individuals below 60 years.
Eligibility conditions:
-
Total income below taxable limit
-
Resident individual or HUF
-
Tax liability should be zero
Incorrect submission may attract penalties.
Form 15H Eligibility
Form 15H is for senior citizens aged 60 years or above.
Conditions include:
-
Resident senior citizen
-
Tax liability is nil
-
Income may exceed threshold but tax payable is zero
This helps retirees avoid unnecessary deductions.
How to Calculate Tax on FD Interest
A simple calculation helps estimate tax impact.
Example:
-
FD interest earned: ₹1,00,000
-
Tax slab: 20%
-
Tax payable: ₹20,000
If TDS deducted ₹10,000, remaining ₹10,000 must be paid during filing.
Understanding calculation improves planning.
How FD Interest Is Reported in ITR
FD interest must be disclosed while filing income tax return.
Steps include:
-
Check interest certificate from bank
-
Verify AIS or tax statement
-
Report income under correct head
-
Claim TDS credit
Accurate reporting avoids notices.
Common Mistakes in FD Interest Taxation
Many taxpayers make avoidable errors.
Frequent mistakes include:
-
Ignoring cumulative FD interest
-
Not reporting small interest amounts
-
Submitting incorrect Form 15G or 15H
-
Assuming TDS covers full tax
-
Forgetting multiple bank deposits
Avoiding mistakes ensures compliance.
How to Reduce Tax on FD Returns Legally
There are legal ways to manage tax burden on FD income.
Smart strategies include:
-
Splitting deposits among family members
-
Investing under senior citizen accounts
-
Choosing tax-efficient alternatives
-
Managing total taxable income
Proper planning improves post-tax returns.
Impact of FD Taxation on Real Returns
Tax significantly reduces effective FD returns.
Factors affecting real returns:
-
Income tax slab
-
Inflation impact
-
TDS deductions
-
Compounding effect
Understanding taxation helps compare investment options.
Why Understanding FD Tax Rules Matters in 2026
Financial reporting systems now integrate banking and tax data more closely.
Implications include:
-
Automatic income reporting
-
Higher compliance checks
-
Reduced scope for errors
-
Faster tax processing
Tax awareness prevents future complications.
Conclusion
Fixed deposits offer stability, but taxation plays a major role in determining actual returns. Understanding TDS rules, correct use of Form 15G or 15H, and proper income reporting helps investors manage tax liability effectively.
A clear understanding of tax on FD interest 2026 ensures better financial planning, avoids penalties, and helps investors maximize real returns from fixed deposit investments.
FAQs
Is FD interest taxable in 2026?
Yes, FD interest is fully taxable as per individual income tax slab.
What is the TDS rate on FD interest?
The standard rate is 10% with PAN and 20% without PAN.
Can I avoid TDS on FD interest?
Eligible individuals can submit Form 15G or Form 15H to avoid TDS.
Do I need to report FD interest in ITR?
Yes, all FD interest must be reported while filing income tax return.
Is TDS on FD interest final tax payment?
No, final tax liability depends on total income and tax slab.