Fixed Deposits are one of the most lucrative and safest investment options that offer high
returns, expand your investment portfolio, build your wealth, and help you achieve your financial
However, fixed deposit interest returns are subject to tax deductions, and every investor must
learn about tax implications on investments before participating in such schemes.
Here is an overview of how taxes affect the interest earned on FDs.
Understanding FDs and Taxation
Investing a lump sum amount for a specific period in fixed deposits assures guaranteed returns
of the principal amount invested and interest earned.
However, the interest amount on FDs is fully taxable and treated as ‘income from other sources’
per the Income Tax Act of 1961 norms. Here are the implications.
Tax Implications on FDs for Individuals
From April 2019 onwards, if you earn an interest amount on FD of more than INR 40,000, you
are liable to pay 10% as tax.
This rate increased to 20% as tax on interest earned for people without PAN details.
The amount is deducted as TDS (tax deducted at source) at the time of credit and applies to
individual FDs. The financial institution deducts the TDS every year, not on the interest received,
but on the interest earned on FDs.
Tax Implications on FDs for Senior Citizens
The TDS on FD for senior citizens is levied if the interest amount is more than INR 50,000 (PAN
users) in a fiscal year.
The tax rate remains the same, that is, 10% of the total interest earned and 20% for non-PAN
Calculation of Tax on FDs
You must use an FD interest rates calculator to compute the estimated returns and analyse
the taxable amount accordingly. Here is an example:
●If you invest INR 5 Lakh in a regular Fixed Deposit for 5 years with an interest rate of
6.5%, you’ll earn INR 1,90,210 in interest income annually.
●This interest earned will be added to your total earnings and shall be taxed according to
the income tax slab.
Linking FD Interest Amount to the Income Tax Slab
The overall tax on FD is calculated according to the income tax slab of the individual of a
particular financial year.
There will be ZERO tax deductions if the total income earned in a year is less than INR 2,50,000
(minimum taxable amount).
Additionally, the investor must submit form 15H (for senior citizens) or 15G (for individuals below
60 years) to the financial institution at the beginning of the financial year.
Opting for Tax-Saver FDs
You can invest in tax-saving FDs, which normally come with a lock-in period of 5 years. The
interest accrued on such investments of up to INR 1.5 Lakh can be claimed as an exemption
under Section 80C of the Income Tax Act.
Let us look at another example:
●Mr Roy invested INR 10 Lakh in a tax-saving fixed deposit at one of the leading financial
institutions that offered an interest rate of 7% for 5 years.
●He calculated his estimated earnings using an FD interest rates calculator. At the end
of 5 years, he shall be eligible to receive INR 10 Lakh as his principal amount and an
accumulated interest of INR 4,14,778.
●Thus, the total receivable amount is INR 14,14,778.
●Tax will be levied on INR 2,64,778, considering that INR 1,50,000 of interest earned is
exempt from taxation, provided the required documentation has been submitted.
How to Save Taxes on Fixed Deposits
Here are some ways in which you can save on the tax liability on FDs:
Expand Your Investment Portfolio
It is imperative to spread your investments across an extensive portfolio, which helps you keep
the interest earned on FDs below the stipulated threshold. This will eventually mitigate your tax
Spread Your FDs across Family Members with a Lower Tax Bracket
You can open FD accounts in the name of your parents, spouse, or family members who fall in
the low-tax bracket. This will help you save on the total tax liability on FD income.
Opt for Tax-Saver FDs
If saving tax is a priority, it is better to stick to tax-saver fixed deposit investments, which gives
you the potential to save up to INR 1.50 Lakhs under section 80C.
Submit Form 15G/15H
●If you are a senior citizen, you must submit form 15H. Otherwise, you must submit form
15G if your total annual income is below INR 2.5 Lakh.
●Submitting this form to the financial institution will ensure that no TDS deductions are
made since your income is not liable for any tax deductions under the norms of the
Go for a Longer Tenure
The longer your FD tenure, the higher your compounded earnings will be. This will eventually
compensate you with the tax liability on your FD accounts.
How to declare FD Interest in ITR
Here is a step-by-step guide that will help you file your ITR for FD interest earned:
Step 1: Request an interest certification from your FD financial institution that reflects the
amount of interest earned in a given financial year.
Step 2: Fill out an ITR and declare the total amount of interest earned under “Income from
Step 3: If your TDS has already been deducted, you can claim TDS by filling in details on Form
26AS through the e-filing portal of the Income Tax website.
Step 4: You can claim the TDS deduction after declaring the FD interest income or claiming the
tax deductions granted on tax-saver FDs.
Step 5: You must fully declare the fixed deposit interest income and not miss out on interest
earned from multiple financial institutions. You must also include interest earned on reinvested
Understanding the tax implications on fixed deposit interest is critical so that you stay
informed and plan your investments like a pro!
It is also important to learn about income tax slabs according to total annual earnings,
understand the benefits of tax-saver fixed deposits, and take better advantage if you are a
senior citizen. Be tax-savvy as an FD investor and clearly understand the tax implications of