Interest on a fixed deposit is added to your total income and taxed at your slab rate as income from other sources. There is no concessional rate, no indexation and no long-term treatment however long the deposit runs. A deposit paying 7% therefore returns about 4.8% after tax to someone in the 30% slab, and roughly 6.3% to someone in the 10% slab — the same product, two very different investments.
Two things trip people up more than the rate itself: the interest is taxable in the year it accrues, not the year the bank pays it out, and the TDS the bank deducts is not your final tax bill.
The arithmetic, worked out
Slab rates carry a 4% health and education cess on top, so the effective rate on a marginal rupee of interest is a little higher than the headline slab. Take a deposit paying 7%.
| Slab rate | With 4% cess | Post-tax return on a 7% deposit | Interest kept on ₹10 lakh |
|---|---|---|---|
| Nil | Nil | 7.00% | ₹70,000 |
| 5% | 5.2% | 6.64% | ₹66,360 |
| 10% | 10.4% | 6.27% | ₹62,720 |
| 15% | 15.6% | 5.91% | ₹59,080 |
| 20% | 20.8% | 5.54% | ₹55,440 |
| 25% | 26.0% | 5.18% | ₹51,800 |
| 30% | 31.2% | 4.82% | ₹48,160 |
The 7% is an illustration, not a quoted rate. Read live rates on your bank’s own rate page against the exact tenure bucket — a rate attached to the wrong bucket is worse than no rate at all. Put your own numbers through the FD calculator and your slab through the income tax calculator.
Above ₹50 lakh of total income, surcharge applies on top and pushes the effective rate higher still. The bank’s advertised rate tells only the pre-tax half of the story.
Accrual, not receipt — where the notices come from
Interest on a cumulative fixed deposit accrues through the year even though you receive nothing until maturity. The bank treats the year’s accrual as interest paid, deducts TDS if the threshold is crossed, and reports the amount against your PAN in that year’s Annual Information Statement. A five-year cumulative FD therefore produces five annual AIS entries, not one large entry in year five.
Declaring the whole amount in the maturity year is the commonest cause of a mismatch: four years show interest reported by the bank and nothing offered by you, and the fifth shows a figure far larger than the bank reported. Every one of those years looks like under-reporting.
Each year, before filing, open the AIS on the e-filing portal, note the interest each bank has reported for that financial year, and offer that figure as income from other sources — whether or not the money has reached your account. The ITR filing walkthrough covers where the AIS sits and how to pull it.
TDS: the thresholds, and what they are not
Banks, co-operative banks and post offices deduct tax at source once the interest they pay you in a financial year crosses a threshold. Both thresholds below were raised with effect from 1 April 2025.
| Threshold per payer, per year | TDS rate | |
|---|---|---|
| Senior citizens (60 and above) | ₹1,00,000 | 10% |
| Everyone else | ₹50,000 | 10% |
| PAN not furnished | Same thresholds | Higher of 20% or the applicable rate |
Three consequences follow, each misunderstood often enough to be worth stating flatly.
The threshold is per bank, not per deposit
The test is applied by the payer across all its branches. Core banking systems aggregate interest against your PAN bank-wide, so three deposits at three branches of the same bank form one running total. Splitting a deposit across branches of one bank achieves nothing.
Splitting across different banks does work mechanically, because each bank applies the threshold to its own payments only — but it defers the deduction rather than reducing the tax, and the whole liability then falls on you at filing time, potentially with interest for shortfall in advance tax. Spread deposits across banks for the deposit insurance cover of ₹5 lakh per depositor per bank, and treat the TDS effect as incidental.
TDS is not the final tax
TDS is an advance credit, deducted at a flat 10% regardless of what you actually owe.
If your slab rate is 20% or 30%, the 10% deducted covers a third to a half of the liability on that interest, and the balance is yours to pay as advance tax during the year or as self-assessment tax when you file. Assuming the bank has handled it is how a shortfall plus interest turns up in July.
If your income is below the taxable limit, the opposite happens: the bank deducted 10% even though you owe nothing, and that money comes back only if you file a return and claim it. No filing, no refund.
Where PAN is not on file
If the bank does not hold your PAN, deduction is at the higher of 20% or the rate otherwise applicable — twice the tax up front, recoverable only by filing. Keeping PAN updated at every bank you hold a deposit with is a five-minute job.
Form 121 replaced Forms 15G and 15H
Forms 15G and 15H were replaced by Form 121 with effect from 1 April 2026. It is a single form covering both age groups, telling the bank not to deduct tax at source.
The eligibility test is stricter than the version repeated across Indian finance content. Both conditions must hold:
- Your estimated tax liability for the year is nil, and
- Your total income is below the basic exemption limit.
The widely repeated claim that senior citizens need only satisfy the nil-liability test, with no income ceiling, is false. Both age groups face both conditions.
This matters because the rebate under the new regime leaves many people with income well above the exemption limit paying nil tax. They satisfy condition one, fail condition two, and are not eligible. A false declaration carries penalty and prosecution risk, so let the TDS be deducted and reclaim it when filing.
80TTA and 80TTB apply only under the old regime
Two deductions exist on interest income, still known by their numbers under the Income-tax Act, 1961 — which the Income-tax Act, 2025 replaced on 1 April 2026, so treat them as labels rather than current citations.
- 80TTA — up to ₹10,000 on savings account interest, for taxpayers under 60.
- 80TTB — up to ₹50,000 on interest from deposits with banks, co-operative banks and post offices, for resident senior citizens. This covers fixed and recurring deposits, not just savings accounts, which is why it is far more useful than 80TTA.
Both are available under the old regime only. A taxpayer under the new regime gets neither.
Since the new regime is the default, most people reading this have already lost both without noticing. For a senior citizen with substantial deposit income, 80TTB is one of the few remaining reasons the old regime can still win on arithmetic — old versus new regime sets out how to run that comparison.
Tax-saver five-year FDs
A tax-saver FD is an ordinary deposit with a five-year lock-in and a deduction attached: for those five years, no premature withdrawal and no loan against the deposit. It qualifies for the deduction long known as section 80C, within the overall ceiling that deduction shares with PPF, life insurance premiums, home loan principal and the rest.
Under the new regime that deduction does not exist, and nothing else about the product beats a plain five-year FD — the interest is taxed identically, and on the same annual accrual. A tax-saver FD under the new regime is a five-year FD you cannot break, and there is no reason to choose one.
Under the old regime, with 80C headroom left after EPF and insurance premiums, the deduction is real and the lock-in may be an acceptable price. Check first whether PPF or the Senior Citizens Savings Scheme fills the same slot on better terms.
Savings account interest
Savings interest is taxed the same way — at your slab rate, as income from other sources — with two differences in the plumbing.
There is no TDS on savings account interest, so nothing is withheld and nothing appears in Form 26AS. The bank still reports it in your AIS, and it is still fully taxable — which makes it the easiest interest to forget.
The second difference is 80TTA, which shelters up to ₹10,000 of savings interest — but again, old regime only. Under the new regime, savings interest is taxable from the first rupee.
Form 26AS, the AIS, and disagreements
Two statements matter, and they are not the same thing.
Form 26AS shows tax actually deducted and deposited against your PAN. It is the document that supports your TDS credit claim.
The AIS is broader. It shows interest reported by each bank whether or not TDS was deducted, which means it captures savings interest and below-threshold FD interest that never appears in 26AS. Reconcile your income against the AIS and your TDS credit against 26AS.
When a bank’s figure disagrees with your own working, do not simply adopt the higher number. The AIS has a feedback facility: mark the entry as incorrect or duplicated and state the figure you believe is right. Then ask the branch for an interest certificate for that financial year — banks issue these on request, and it is the document that settles the argument, so keep it. Genuine mismatches usually trace to a joint account reported in full to both holders, a deposit closed mid-year, or a deposit renewed rather than paid out.
What this changes about holding deposits
A deposit at 7% delivers about 4.8% to a 30% slab taxpayer, and if inflation over the holding period runs above that, the deposit has preserved the rupees and lost the purchasing power. For a taxpayer in the nil or 5% band the same deposit is a perfectly sound holding; at the top slab it is expensive safety.
That is not an argument against deposits. Money you will need within a few years belongs somewhere it cannot fall, and a deposit does that better than anything with a market price. It is an argument for sizing them honestly: hold what near-term spending and emergencies need, and decide about longer-term money separately.
The other lever is who holds the deposit. Income in the hands of an adult family member in a lower slab is taxed at their rate, provided the money is genuinely theirs — clubbing provisions apply to a spouse or minor child, and dressing up a transfer to shift tax does not survive scrutiny. Where a senior parent has their own funds, the higher TDS threshold, the 80TTB deduction under the old regime and access to the Senior Citizens Savings Scheme make their name the more efficient one to hold a deposit in.
Common questions
Do I pay tax on FD interest every year or only at maturity?
Every year, in the year the interest accrues, even on a cumulative deposit that pays you nothing until maturity. Interest accrues to the deposit through the year, and the bank deducts TDS on that accrual if the threshold is crossed and reports the figure in your Annual Information Statement for that year. If you wait and declare the whole amount in the maturity year, the department sees interest reported against your PAN in four earlier years with nothing offered in return. That mismatch is the single commonest cause of a notice on deposit income.
If the bank deducts TDS, is my tax on the FD finished?
No. TDS is an advance credit against your final liability, not a substitute for it. It is deducted at 10%, while your slab rate may be 20% or 30% plus cess — in which case you owe the balance as advance tax or self-assessment tax when you file. It runs the other way too: someone whose income is below the taxable limit but whose interest crossed the threshold has had tax deducted that they do not owe, and the only way to get it back is to file a return and claim the refund.
Does splitting a deposit across branches avoid TDS?
No. The threshold is applied by the payer — the bank — across every branch, because core banking systems aggregate interest against your PAN bank-wide. Three deposits at three branches of the same bank are one running total. Splitting across different banks does keep each bank's total below its own threshold, since each bank applies the test separately. That defers deduction, not tax: the interest remains fully taxable at your slab rate, and skipping TDS simply means paying the whole amount yourself at filing time.
Are Forms 15G and 15H still valid?
No. They were replaced by Form 121 with effect from 1 April 2026. The eligibility test is stricter than most people believe: both age groups must have nil estimated tax liability for the year and total income below the basic exemption limit. The widely repeated claim that senior citizens face no income ceiling is wrong. Making the declaration when you do not qualify is a false declaration, carrying penalty and prosecution risk, so check both conditions before signing.
Is a five-year tax-saver FD worth it under the new regime?
No. Its only advantage over an ordinary deposit is the deduction under the provision long known as section 80C, and that deduction does not exist under the new regime, which is now the default. The interest is taxed the same either way. What survives is the five-year lock-in, no premature withdrawal and no loan against the deposit. Under the new regime you are accepting the restriction and receiving nothing for it. Under the old regime, with 80C headroom to spare, the deduction can still justify it.
Sources
Rates and rules on this page were read directly from the following sources on the dates shown. Figures change — if you are about to act on one, confirm it at the source.