Income Tax on Fixed Deposit & Savings Interest
TDS deducted by your bank is rarely your final tax bill. Here is how interest from FDs and savings accounts actually gets taxed, and where the gap usually shows up.
TDS on Savings Account Interest
Banks do not deduct TDS on interest earned from a savings account - but that does not mean your tax obligation ends there. You may still owe tax based on your actual slab rate. However, under Section 80TTA of the Income Tax Act, resident individuals below the age of 60 can claim a deduction of up to ₹10,000 on savings account interest in a financial year. Anything earned above this threshold is taxable in your hands. It is important to note that the Section 80TTA benefit is available only under the Old Tax Regime.
TDS on Fixed Deposits
TDS on fixed deposits works differently. Here, the bank deducts a portion of the interest you earn and deposits it directly with the Income Tax Department on your behalf - before the interest ever reaches your account. TDS on your FD interest is not a final settlement; it is simply an advance payment against what you may eventually owe based on your actual slab rate. The difference, if any, must be settled when you file your return.
How TDS on FD Interest is Calculated
Two factors determine how much is deducted:
Applicable TDS Rate
10% for resident individuals who have provided their PAN to the bank; 20% if PAN has not been furnished. Non-resident individuals may attract different rates depending on their tax status and any applicable tax treaties. For NRI-specific tax treatment, see our article on Foreign Income Tax Compliance in India.
Threshold Amount
TDS applies once total FD interest from all deposits with a bank crosses ₹50,000 in a financial year - or ₹1,00,000 for senior citizens aged 60 and above.
Total Income Tax Calculation
It is worth being clear about what TDS actually covers: it is deducted only on your fixed deposit interest, not on your total income. Your overall tax liability also includes salary, rental income, business income, and any other sources you have - interest is just one piece of that picture. For a broader view of how income from all sources is taxed, see our Income Tax FAQs.
Worked Example Under New Tax Regime
Because Suresh falls in the 15% tax bracket but the bank withheld TDS at only 10%, he still owes the difference of ₹4,413 when he files his return. Note that savings account interest also forms part of his taxable income, even though no TDS was deducted on it. This is exactly why both FD interest and savings account interest must be reported in full when filing your return. Our guide on ITR Filing Essentials covers what to include when preparing your return.
Section 80TTB
Senior citizens aged 60 years and above are entitled to a more generous benefit: Section 80TTB allows a deduction of up to ₹50,000 per annum on interest earned from both fixed deposits and savings accounts combined - replacing the lower limit available under Section 80TTA to younger taxpayers. This benefit is available only under the Old Tax Regime.
A comparison of how interest income is treated under each regime is also covered in our New Tax Regime vs Old guide.