Quick answer: A bank FD’s interest is taxed every year as it accrues, at your income tax slab rate, even if you take the money only at maturity. The bank deducts TDS of 10 percent (20 percent if it has no valid PAN) once your interest from that bank passes Rs 50,000 a year, or Rs 1,00,000 for senior citizens, since 1 April 2025. TDS is only an advance: if your total income is below the taxable limit, you can submit Form 15G or 15H, or claim the TDS back in your return. The after-tax return is what you really earn.
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A fixed deposit looks simple: a rate, a term and a maturity amount. The amount that reaches you depends on how often interest is added, how much tax you pay on it and whether the bank deducts TDS. This guide explains each of these, with a calculator that shows the figures year by year. Facts were checked on 25 October 2026. Tax rules change, so check the current rules before you act. This is general information, not tax advice.
On this page
- How FD interest is calculated
- How the interest is taxed
- What TDS is, and what changed in 2025
- See what your FD really earns
- Ways to improve the after-tax result
- A new Income-tax Act from 1 April 2026
- A worked example: Rs 1,00,000 at 7% for 5 years
- How safe is a fixed deposit?
- Frequently asked questions
- Sources
How FD interest is calculated
Most banks add interest to the deposit at regular intervals, often every quarter. The next interest is then calculated on the larger amount. This is compounding. The more often interest is added, the more you earn on the same stated rate, but the difference between quarterly and yearly is small for most deposits.
The formula is the amount times (1 plus the rate divided by the number of periods per year), raised to the power of periods per year times years. The calculator below does it for you. The rate on a bank’s page may be the stated annual rate or the effective yield after compounding, so compare the same kind of figure across banks.
How the interest is taxed
- Interest is added to your income and taxed at your slab rate. It comes under “income from other sources”.
- It is generally taxable each year as it accrues, not only at maturity. A 5-year cumulative FD still gives you taxable interest in each of the 5 years, according to one bank’s guidance.
- The bank shares the interest and the TDS it deducted with the tax department. You can see it in Form 26AS and the Annual Information Statement (AIS) on the e-filing portal. Match them with your bank’s interest certificate before you file.
- Resident senior citizens can claim a deduction on interest from bank, post office and cooperative deposits under the old regime, up to Rs 50,000 a year, according to one bank’s guide. It does not apply under the new regime.
What TDS is, and what changed in 2025
TDS is tax that the bank deducts before it pays or credits your interest. It is an advance toward your tax, not an extra tax.
| Item | What applies |
|---|---|
| When the bank deducts it | When the interest from that bank in a financial year passes the limit |
| Limit for most people | Rs 50,000 a year (earlier Rs 40,000) |
| Limit for senior citizens | Rs 1,00,000 a year (earlier Rs 50,000) |
| Rate with a valid PAN | 10 percent |
| Rate without a valid PAN | 20 percent |
The higher limits were announced in the February 2025 Union Budget and apply from 1 April 2025, as reported by Business Standard. Some older bank pages still show Rs 40,000 and Rs 50,000. The limit is counted per bank, across all your deposits with that bank, so two FDs in one bank add up.
If your total income is below the taxable limit
If your total income for the year, including the interest, is below the taxable limit, you can ask the bank not to deduct TDS. Residents below 60 use Form 15G, and residents aged 60 or more use Form 15H. Submit it to each bank, ideally at the start of the financial year. If TDS was deducted anyway, you can claim it back when you file your return. Check the exact eligibility conditions with your bank, since they depend on your total income and the rules of that year.
See what your FD really earns
Enter your own amount, rate and tax slab. The tool shows interest each year, estimated tax and where TDS would apply.
| Year | Interest that year | Tax at your slab | TDS applies? |
|---|
Ways to improve the after-tax result
- Compare after-tax returns, not only the stated rate. In the 30 percent slab, a 7 percent rate leaves roughly 4.9 percent after tax (7 x 0.7), before cess.
- Spread deposits across banks if your interest from one bank would pass the TDS limit. That avoids TDS, but the interest is still taxable in your return.
- Submit Form 15G or 15H on time if you are eligible, so you do not lock up money in TDS and wait for a refund.
- Check the bank’s safety and the deposit insurance limit before you put a large sum in one bank. DICGC insurance covers deposits up to a limit per depositor per bank, so check the current figure on the DICGC website.
- Consider the tax-saver FD only if you want the Section 80C deduction under the old regime, and know it has a 5-year lock-in. Check the current rules first.
- Keep a tenor that matches your need. Breaking an FD early usually brings a penalty on the rate.
A new Income-tax Act from 1 April 2026
A tax-practice blog explaining the Income-tax Act, 2025 says the new Act applies from 1 April 2026 and that the old section 194A (TDS on interest other than interest on securities) now sits under section 393(1). The thresholds used in this guide, Rs 50,000 a year for most depositors and Rs 1,00,000 for senior citizens, are the ones that blog and the Union Budget 2025 reports give for bank interest. If your bank certificate or Form 26AS shows a different section number, that is the renumbering. Form names and procedures can change too, so use the form your bank asks for when you submit a declaration to avoid TDS.
A worked example: Rs 1,00,000 at 7% for 5 years
With quarterly compounding, Rs 1,00,000 at 7% grows to about Rs 1,41,478 in five years. The interest is taxed every year as it accrues, even though you receive it at maturity. The table shows the yearly accrual and the tax at the 30% slab, before cess. It is a worked example, not a rate offer.
| Year | Interest accrued | Tax at 30% (before cess) |
|---|---|---|
| 1 | Rs 7,186 | Rs 2,156 |
| 2 | Rs 7,702 | Rs 2,311 |
| 3 | Rs 8,256 | Rs 2,477 |
| 4 | Rs 8,849 | Rs 2,655 |
| 5 | Rs 9,485 | Rs 2,845 |
| Total | Rs 41,478 | Rs 12,443 |
Interest after tax is about Rs 29,035 in total. The rule of thumb of 7% less 30% tax, which gives 4.9%, comes out a little lower because it ignores compounding. Because the yearly interest is below Rs 50,000, the bank would not deduct TDS here. You would still add the interest to your income and pay tax on it when you file your return.
How safe is a fixed deposit?
The Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank, insures each depositor up to Rs 5,00,000 per bank, principal and interest together. Its FAQ says deposits in different branches of the same bank are added together under that one limit, while deposits at different banks are insured separately. If your savings with one bank are above the limit, think about spreading them.
Frequently asked questions
Do I pay tax if no TDS was deducted?
Yes. TDS is only an advance. If your total income is above the taxable limit, you owe tax on the interest and must report it in your return, even when the bank deducted nothing.
Is the interest taxed only when the FD matures?
Generally no. Interest is taxable each year as it accrues, so you report it every year, even for a cumulative FD that pays everything at maturity.
Is the TDS limit per FD or per bank?
Per bank. Interest from all your FDs with the same bank in the year is added up.
Which regime should I be in?
That depends on your whole income and deductions. See our guide to comparing the old and new income tax regimes.
This guide is general information, not tax advice. Rates, limits and forms change. Confirm on the income tax department’s website, with your bank or with a chartered accountant.
Is my FD safe if the bank fails?
The DICGC insures up to Rs 5,00,000 per depositor per bank, covering principal and interest together, according to its FAQ. Amounts above that are not covered.
Do I owe tax if TDS is not cut?
Yes. TDS is an advance payment. Interest is taxable at your slab rate whether or not the bank deducts TDS, so include it in your return.
Did the section number for TDS on FD interest change?
A tax-practice blog says the old section 194A is now section 393(1) of the Income-tax Act, 2025, which applies from 1 April 2026. The thresholds quoted for bank interest stayed at Rs 50,000 and Rs 1,00,000 for seniors.
Sources
View sources (6)
| Source | What it was used for |
|---|---|
| Business Standard, “Fixed depositors business-standard.com | your TDS limit hiked to Rs 50,000, Rs 1 lakh for seniors” (1 February 2025): the increase of the TDS limit on interest. News report on the Union Budget 2025 announcement. |
| BankBazaar, “Income tax and TDS on FD interest income” bankbazaar.com | current limits, 10 and 20 percent rates, Forms 15G and 15H. The page also has an unrelated Rs 4 lakh figure, which is not used here. |
| IndusInd Bank, “Tax on fixed deposit interest” (updated 14 August 2026) indusind.bank.in | accrual taxation, Form 26AS and AIS, the senior citizen deduction. Its TDS limits (Rs 40,000 and Rs 50,000) are the old figures, so they were not used. |
| Deposit Insurance and Credit Guarantee Corporation, FAQs dicgc.org.in | Rs 5 lakh cover per depositor per bank, principal plus interest, branches combined (official). |
| TDSMAN, “TDS on interest other than interest on securities: section 393(1) (section 194A)” (2026) blog.tdsman.com | mapping of 194A to 393(1), effective 1 April 2026, senior citizen threshold (tax-practice blog). |
| CalcGuru, section 393 TDS transition guide for FY 2026-27 calcguru.in | bank interest thresholds under the new Act (secondary source). |
