TDS on Fixed Deposits: Are You Losing Money Without Knowing It?

How TDS on FD Works

Under Section 194A of the Income Tax Act, banks must deduct TDS on interest earned from Fixed Deposits. The deduction happens when interest is credited (quarterly for most FDs), not necessarily at maturity.

• TDS rate with PAN: 10% of interest income
• TDS rate without PAN: 20% (avoid this at all costs)
• Threshold for regular customers: TDS applies only if interest exceeds ₹40,000/year from all FDs at a single bank
• Threshold for senior citizens (60+): Higher threshold of ₹50,000/year per bank

The "Per Bank" Threshold: A Legal Optimization

The ₹40,000 threshold applies per bank — not per PAN or per total interest income. This creates a legitimate strategy:

Important: splitting FDs doesn't eliminate the tax liability — you still owe tax on total interest income. It just avoids the TDS mechanism, giving you control over when and how you pay.

Form 15G and 15H: Prevent TDS Deduction Entirely

If your total income is below the basic exemption limit (and thus your tax liability is zero), you can submit a self-declaration to prevent banks from deducting TDS:

• Form 15G: For individuals under 60 years whose estimated total income for the year is below the basic exemption limit (₹2.5 lakh under old regime, ₹3 lakh under new)
• Form 15H: For senior citizens (60+) whose total tax liability for the year is nil

Submit digitally via your bank's net banking portal — most banks now accept online submissions. If you have FDs at multiple banks, submit at each bank separately.

What Happens if You Don't Submit 15G But Qualify

The bank will deduct 10% TDS. You'll see this in your Form 26AS and AIS (Annual Information Statement). When you file your ITR:

1. Report all interest income (including the FD interest) under "Income from Other Sources"
2. Claim the TDS as credit in Schedule TDS
3. If your tax liability is less than TDS deducted, you'll get a refund
4. Refund typically arrives within 3–6 months of ITR filing

Tax Liability vs TDS: Who Pays More?

FD Interest on Accrual Basis: The Multi-Year FD Trap

A common mistake: investors with 2-year or 3-year FDs assume they only declare interest at maturity. Wrong. Under the Income Tax Act, FD interest must be reported on an accrual basis — meaning you must report the interest earned in each financial year, even though you receive it at maturity.

Example: ₹1 lakh FD at 7.5% for 3 years. Each year, you must report approximately ₹7,500 as interest income in your ITR — not just in year 3 when the FD matures.

Banks issue TDS certificates and interest certificates at year-end. Request these every March/April from each bank where you hold FDs, and use them for accurate ITR filing.

Tracking All FD Interest: Using AIS

The easiest way to ensure no interest income is missed: download your Annual Information Statement (AIS) from the Income Tax portal (incometax.gov.in → Services → AIS). The AIS aggregates all interest income reported by financial institutions linked to your PAN — across all banks, post offices, and NBFCs.