Income Tax on Fixed Deposit (FD) Interest in India 2025: TDS Rules and Exemptions
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- by MI September 24, 2025
Fixed Deposits (FDs) remain one of the most popular investment options in India. However, the interest earned on FDs is not tax-free. In 2025, taxpayers must understand how FD interest is taxed, applicable TDS rules, exemptions, and ways to reduce tax liability. This guide covers everything you need to know about FD interest taxation in India for FY 2024-25 (AY 2025-26).
1. Taxability of FD Interest
Interest earned on fixed deposits is treated as ‘Income from Other Sources’ and is fully taxable as per your income tax slab rate. It must be declared while filing your Income Tax Return (ITR).
2. TDS Rules on FD Interest in 2025
Banks and NBFCs deduct Tax Deducted at Source (TDS) on FD interest if it exceeds the specified threshold limit.
| Category | TDS Threshold (FY 2024-25) | TDS Rate |
|---|---|---|
| Individuals (below 60 years) | ₹40,000 per year | 10% (if PAN is furnished), 20% (if PAN not provided) |
| Senior Citizens (60 years & above) | ₹50,000 per year | 10% (if PAN is furnished) |
Note: If your total income is below the taxable limit, you can submit Form 15G (for individuals) or Form 15H (for senior citizens) to avoid TDS deduction.
3. Example of FD Interest Taxation
Suppose you are below 60 and earn ₹60,000 interest in FY 2024-25.
- TDS @ 10% = ₹6,000 deducted by bank.
- Entire ₹60,000 must be reported under "Income from Other Sources".
- Tax liability depends on your total income slab. If slab tax is more than TDS deducted, you pay the difference; if less, you claim refund.
4. Exemptions & Deductions
- Section 80TTB: Senior citizens can claim deduction up to ₹50,000 on interest income from FDs, savings, or recurring deposits.
- Form 15G/15H: Submit to avoid TDS if total income is below taxable limit.
- No separate exemption for non-senior citizens, FD interest is fully taxable.
5. Tax-Saving Tips for FD Investors
- Split FDs across different banks to keep interest below the TDS threshold.
- Senior citizens should utilize Section 80TTB deduction effectively.
- Consider Tax-Saving FDs (5-year lock-in) eligible under Section 80C (up to ₹1.5 lakh).
- Track FD interest quarterly to avoid mismatch in ITR filing.
6. FD Types and Tax Benefits – Comparison Table
| Type of FD | Lock-in Period | Eligibility | Tax Benefit | Best For |
|---|---|---|---|---|
| Regular FD | Flexible (7 days to 10 years) | All individuals | No direct tax benefit; interest fully taxable | Short-term savings & safe returns |
| Tax-Saving FD | 5 years (mandatory lock-in) | Individuals & HUFs | Eligible for deduction under Section 80C (up to ₹1.5 lakh) | Tax-saving + fixed guaranteed returns |
| Senior Citizen FD | Flexible (same as regular FDs) | Individuals aged 60+ | Higher interest rates + Section 80TTB deduction up to ₹50,000 | Retirees looking for stable, higher post-tax returns |
7. Reporting FD Interest in ITR
FD interest must be reported annually in your ITR, even if TDS has already been deducted. Non-disclosure may lead to penalties since banks report FD interest under Form 26AS and AIS.
Conclusion
In 2025, FD interest remains fully taxable in India, but taxpayers can plan smartly to reduce liability. By understanding TDS rules, exemptions for senior citizens, and using deductions under Section 80C & 80TTB, you can make FDs more tax-efficient while ensuring compliance with income tax laws.
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