TDS on FD - Who Deducts TDS on Fixed Deposit?

Introduction

For generations, the Fixed Deposit (FD) has been the bedrock of Indian savings. It is safe, predictable, and offers guaranteed returns. However, what many investors realize too late is that the interest earned on these deposits is not tax-free.

Unlike PPF or EPF, the interest from FDs is fully taxable under the head "Income from Other Sources." To ensure they collect this tax, the government mandates banks to deduct Tax Deducted at Source (TDS) before crediting the interest to your account.

The confusion often lies in the limits. Is the exemption ₹10,000 or ₹40,000? Does it apply to recurring deposits (RD) as well? In 2025, with tax slabs shifting and compliance tightening, knowing the exact TDS rules can save you from cash flow issues. In this guide, we will explain when banks deduct TDS, the special higher limits for senior citizens, and the penalty if you forget to submit your PAN.

Table of Contents

1. What is TDS on Fixed Deposit?
2. Who Deducts TDS? (Banks, Post Offices, NBFCs)
3. When is TDS Deducted? (Threshold Limits 2025)
4. Current TDS Rates: 10% vs 20%
5. TDS on FD for Senior Citizens (Section 194A)
6. Does TDS Apply to Recurring Deposits (RD)?
7. How to Avoid TDS: Form 15G and 15H
8. TDS on FD for NRIs (NRO vs NRE)
9. Claiming TDS Refund in ITR
10. FAQs

What is TDS on Fixed Deposit?

TDS on FD is a mechanism where the bank deducts a percentage of your interest income and pays it to the government on your behalf.

It is governed by Section 194A of the Income Tax Act.

• Note: The tax is on the interest earned, not on the principal amount you deposited. The principal is your own money and is never taxed when withdrawn.

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Who Deducts TDS? (Banks, Post Offices, NBFCs)

Any entity where you have parked your money in a time deposit is liable to deduct tax.

This includes:

• Public and Private Sector Banks (SBI, HDFC, etc.).
• Co-operative Banks.
• Post Offices (on Time Deposits and SCSS).
• Non-Banking Financial Companies (NBFCs) like Bajaj Finance or Shriram Finance.

When is TDS Deducted? (Threshold Limits 2025)

Banks do not deduct tax on every small interest amount. There is a monetary threshold.

TDS is deducted only if the aggregate interest from all FDs with a single bank exceeds the limit in a financial year.

1. For General Citizens (Below 60 years)

• Threshold: ₹40,000.
• If your total interest income from Bank A is ₹35,000, no TDS is cut. If it is ₹45,000, TDS is cut on the entire ₹45,000.

2. For Senior Citizens (60 years and above)

• Threshold: ₹50,000.
• The government offers higher relief to seniors to protect their retirement income.

Important: The limit is per bank, not per branch. With Core Banking Solutions (CBS), the bank aggregates interest from all its branches to check the limit.

Current TDS Rates: 10% vs 20%

The rate of deduction depends on your KYC compliance.

1. Standard Rate: 10% on the interest amount.
2. No PAN / Invalid PAN: 20%.

If you do not furnish your PAN to the bank, or if your PAN is inoperative (not linked with Aadhaar), the bank is forced to deduct tax at a flat 20%.

Example:

• Interest Earned: ₹1,00,000.
• TDS (with PAN): ₹10,000.
• TDS (without PAN): ₹20,000.

TDS on FD for Senior Citizens (Section 194A)

Senior citizens enjoy a double benefit.

1. Higher TDS Limit: Banks won't deduct tax up to ₹50,000 interest.
2. Tax Deduction (Section 80TTB): Even if interest exceeds ₹50,000, they can claim a deduction of up to ₹50,000 in their Income Tax Return (under Old Regime).

Does TDS apply to Recurring Deposits (RD)?

Yes.

Previously, RDs were exempt from TDS. However, this loophole was closed years ago. Now, the interest earned on Recurring Deposits is treated exactly like FD interest. The limit of ₹40,000/₹50,000 applies to the combined interest of your FDs and RDs in that bank.

How to Avoid TDS: Form 15G and 15H

If your total income is below the taxable limit, you can request the bank not to deduct TDS by submitting a self-declaration form.

1. Form 15G: For individuals below 60 years.

Condition: Total income is below the basic exemption limit AND tax on total income is Nil.

1. Form 15H: For Senior Citizens (60+).

Condition: Final tax on total income is Nil.

Timeline: Submit these forms every year in April to ensure no deduction happens during the year.

TDS on FD for NRIs (NRO vs NRE)

For Non-Resident Indians, the rules are different.

1. NRE (Non-Resident External) Accounts:

• Interest is Tax-Free in India.
• No TDS is deducted.

2. NRO (Non-Resident Ordinary) Accounts:

• Interest is Fully Taxable.
• TDS Rate: 30% + Surcharge + Cess (Effective approx 31.2%).
• Note: The ₹40,000 threshold does not apply to NRIs. TDS is deducted on every rupee of interest.

Related Read: NRE vs NRO Demat account - Which is better for you?

Claiming TDS Refund in ITR

If the bank deducted 10% TDS but your total income is low (e.g., ₹4 Lakhs), you are not liable to pay any tax. In this case, the TDS deducted is excess tax paid.

You can claim a Refund of the entire TDS amount by filing your Income Tax Return. The amount will be credited back to your bank account after processing.