ITR filing 2026: Fixed deposits (FD) are regarded as one of the most secure investment choices. Individuals who are employed, senior citizens, and those with a low risk tolerance frequently invest in FDs. However, it’s important to note that the interest accrued on FDs is not entirely tax-exempt. If you don’t fully grasp the regulations, you might end up facing both taxes and penalties later on.
Where is the FD interest added?
The interest generated from FDs is categorized under “income from other sources.” This indicates that the interest you earn from the bank is included in your total annual income and taxed accordingly. For instance, if your annual income from employment is Rs 9 lakh and you earn Rs 80 thousand in interest from an FD, your total taxable income will amount to Rs 9.80 lakh.
When does the bank deduct TDS?
The bank starts deducting TDS if the total interest earned on an FD in a financial year surpasses a specific limit. This threshold is set at Rs 50,000 for regular customers, while for senior citizens, it goes up to Rs 1 lakh. If your PAN card is registered with the bank, a standard TDS of 10% is usually deducted. If your PAN is not registered, a higher TDS rate may apply.
Is only TDS deducted?
Many individuals believe that once TDS is deducted, they are exempt from paying any tax. However, this is not always the case. If you fall into the 20% or 30% tax bracket, merely deducting 10% TDS does not settle your tax obligations. You might need to pay the remaining tax when you file your ITR. Nevertheless, if your total income is below the taxable limit, you can avoid TDS by submitting Form 15G or Form 15H, with senior citizens using Form 15H.
How to save tax on FD?
A 5-year Tax Saver FD can qualify for a tax deduction of up to Rs 1.5 lakh under Section 80C. However, keep in mind that there is a lock-in period during which the funds cannot be accessed. Some individuals also attempt to manage the TDS limit by distributing their FDs across various banks. While FDs are certainly viewed as a secure investment, when considering taxes and inflation, the actual returns may be significantly lower. If you fall into a higher tax bracket, the post-tax return on an FD can often be much lower than expected. Therefore, instead of investing solely based on the interest rate, it’s important to consider the tax implications.
