Fixed deposits remain a staple for risk-averse Indian savers, but the interest they earn is taxable — and banks deduct tax at source (TDS) once it crosses certain thresholds.
TDS thresholds
TDS at 10% is levied on FD interest income exceeding Rs 40,000 in a financial year for regular individuals, and Rs 50,000 for senior citizens. If the depositor's total income is below the taxable limit, they can submit Form 15G (or 15H for seniors) to avoid the deduction.
How FD interest is taxed
FD interest is added to total income and taxed at the individual's slab rate. The 10% TDS is only an upfront deduction; depositors in higher slabs may owe additional tax, while those in lower slabs can claim a refund.
Tips for FD investors
Spreading deposits, timing maturities, and using Form 15G/15H where eligible can help manage the tax impact. Compare the latest FD rates across banks before locking in.
Sources: Paisabazaar, BankBazaar.