Interest earned on fixed deposits is fully taxable at your income tax slab rate, no exceptions, no special lower rate for FD interest the way capital gains sometimes get. What confuses a lot of depositors is the TDS mechanism banks use, and when Form 15G or 15H can actually help, versus when it doesn't apply at all.
The Current TDS Threshold
Banks, cooperative banks, and post offices are required to deduct TDS if your aggregate FD interest across all deposits with that institution exceeds ₹50,000 in a financial year for regular depositors, or ₹1,00,000 for senior citizens (60 years and above). These thresholds were raised effective April 1, 2025. TDS is deducted at 10% if you've provided your PAN, or 20% if you haven't.
This threshold applies per bank, not across all your FDs everywhere. If you have FDs spread across three different banks, each earning ₹40,000 in interest, no single bank crosses the ₹50,000 threshold, so no TDS is deducted anywhere, even though your total interest income across all three (₹1,20,000) is fully taxable and needs to be declared and taxed at your slab rate when filing your ITR.
The Common Misunderstanding
A lot of people believe that if no TDS was deducted (because they stayed under the threshold at each bank), the interest itself isn't taxable, or doesn't need to be reported. This is incorrect. TDS is simply a collection mechanism, whether or not TDS was deducted, the full interest income is taxable and must be declared in your ITR under "Income from Other Sources." Spreading deposits across multiple banks to avoid TDS doesn't reduce your actual tax liability, it just delays when the tax is collected, from upfront TDS to when you file your return and pay any shortfall.
Form 15G and Form 15H: What They Actually Do
Form 15G (for individuals below 60) and Form 15H (for senior citizens 60 and above) are self-declarations you submit to the bank stating that your total income for the year is below the taxable threshold, so no TDS should be deducted on your interest. These forms only work if your total income genuinely falls below the basic exemption limit for the year. Submitting them when your actual income exceeds the exemption limit is a false declaration, and while it stops TDS from being deducted, you're still liable for the full tax on your actual income, and falsely submitting these forms carries its own compliance risk.
Who Should Actually Use Form 15G/15H
These forms are genuinely useful for people whose total income, including FD interest, stays below the taxable threshold, retired individuals with modest savings and interest income as their main source, or someone with low salary income supplemented by FD interest, where the combined total doesn't cross the basic exemption limit. For anyone with income above the taxable threshold, these forms don't reduce the actual tax owed, they only prevent TDS, meaning you'd need to pay the full liability yourself when filing (potentially with interest if it should have been paid as advance tax).
Claiming TDS Credit When Filing Your ITR
Whatever TDS was deducted on your FD interest shows up in your Form 26AS and Annual Information Statement, and you claim credit for it against your total tax liability when filing your ITR, the same way TDS on salary works. If your total tax liability (after considering your full income from all sources) is lower than the TDS already deducted, you'll receive a refund for the excess.
Why This Matters More for Senior Citizens
Senior citizens get both a higher TDS threshold (₹1 lakh vs ₹50,000) and a separate deduction under Section 80TTB, which exempts up to ₹50,000 of interest income (covering FD, savings account, and recurring deposit interest combined) from tax entirely, under the old tax regime. This makes FD interest planning meaningfully different for retirees than for working-age depositors, worth structuring deposits with this specific benefit in mind.
Frequently Asked Questions
If TDS was deducted at 10% but I'm actually in the 30% tax bracket, do I owe more tax?
Yes, TDS at 10% is just a partial collection. When you file your ITR, your total FD interest is added to your total income and taxed at your actual applicable slab rate, with the 10% already deducted given as credit against that final liability, you'll owe the difference.
Can I submit Form 15G if I have some other taxable income besides FD interest?
Yes, as long as your total income across all sources for the year is below the basic exemption limit. It's not restricted to people with only FD interest as income, it's about your total income level.
Does TDS apply to recurring deposits the same way as fixed deposits?
Yes, interest on recurring deposits is treated the same way under Section 194A, subject to the same threshold and TDS rate as fixed deposit interest.
What happens if I forget to submit Form 15G and the bank deducts TDS unnecessarily?
The TDS deducted isn't lost, you can still claim it as credit when filing your ITR, and if your actual tax liability is lower (or zero, given your income is below the exemption limit), you'll receive it back as a refund. Submitting the form on time simply avoids the temporary deduction and the need to wait for a refund.
