- FD interest is added to your other income and taxed at your slab rate, every year it is earned, even if the FD hasn’t matured.
- On a ₹10 lakh FD at 7% for 5 years, the tax is ₹0 if your income is under the ₹12 lakh limit, 15.6% of the interest on a ₹15 lakh salary and 31.2% on ₹25 lakh.
- Just above the limit it’s brutal: on a ₹12.75 lakh salary, the first year’s ₹71,859 of interest brings ₹73,610 of tax.
- TDS is not the final tax. The bank deducts 10% above ₹50,000 of interest a year (₹1 lakh for seniors). You pay or get back the difference when you file.
Fixed deposits are India’s favourite safe investment: no market risk, a known rate, and deposit insurance up to ₹5 lakh per bank. What the rate card doesn’t tell you is that the 7% on it is a before-tax number, and the tax depends entirely on you.
How FD interest is taxed
- It counts as your income (“income from other sources”), added to your salary, pension or other income for the year.
- It is taxed every year it is earned, not just at maturity. A 5-year cumulative FD still creates taxable interest each year, even though you receive nothing until the end.
- The rate is your slab rate: the rate on the top part of your income. If the interest crosses a slab boundary or the ₹12 lakh rebate limit, the effect is larger.
Same FD, five different people
Take ₹10 lakh in a 5-year FD at 7%, compounded quarterly. It earns ₹4,14,778 of interest. Here is how much of that each person keeps, under the new regime:
| Other yearly income | Tax on the interest | Share of interest lost | Real return after 6% inflation |
|---|---|---|---|
| None, or a ₹6 L pension | ₹0 | 0% | +1.1% a year |
| ₹15 L salary | ₹64,706 | 15.6% | +0.2% a year |
| ₹25 L salary | ₹1,29,411 | 31.2% | −0.8% a year |
| ₹12.75 L salary | ₹3,76,706 | 90.8% | −5.0% a year |
The first three rows are what you might expect. The last one surprises almost everyone.
The ₹12.75 lakh trap
A salary of ₹12.75 lakh is tax-free in the new regime, because the ₹75,000 standard deduction brings taxable income to exactly ₹12 lakh. Any interest on top takes it over the line, and the rebate that was saving ₹60,000 of tax starts to disappear.
In year one the tax is larger than the interest itself. Anyone near the limit should run their own numbers before putting a large sum into an FD. Why the ₹12 lakh line works this way.
Open this example →Options people consider in this situation include deposits in the name of a family member with lower income (the income may still be clubbed back to you in some cases, such as gifts to a spouse), or investments taxed only when sold. Each has its own rules, so check before you act.
Retirees: often zero tax, but watch the TDS
For a retiree whose only income is a modest pension and FD interest, the new regime is very generous.
Pension plus interest stays under ₹12 lakh, so there is no tax. But the bank will still deduct TDS once a year’s interest crosses ₹1 lakh, unless you submit Form 15H at the start of the year.
Open this example →TDS is not your tax bill
This is the most common confusion about FDs. Banks deduct tax at source (TDS) at 10% when your interest from that bank crosses ₹50,000 in a year (₹1 lakh for senior citizens), or 20% if you haven’t given your PAN. That is just an advance:
- If your real tax on the interest is higher than the TDS (the 30% slab, for example), you pay the difference when you file your return, or through advance tax.
- If it is lower, including zero, you get the extra back as a refund when you file.
- If you will owe no tax for the year, you can usually submit Form 15G (or 15H if you are 60 or older) so the bank doesn’t deduct TDS at all. Form 15G has extra income conditions, so check them first.
Splitting FDs across banks keeps each bank’s interest under the TDS limit, but it doesn’t change your tax. The interest is still taxable and should be shown in your return. The tax department sees it in your annual statement.
Very large deposits
A common belief is that with no salary, a big FD is tax-free. It isn’t. ₹7 crore at 7% earns about ₹50 lakh in the first year. With no other income, that is taxed through every slab and attracts a surcharge, and about ₹11.5 lakh of it goes in tax in year one, a quarter of the interest over five years.
See the ₹7 crore example →How to compare an FD with other options
Always compare after tax and after inflation. A 7% FD in the 30% slab keeps only about 5% a year, which is below 6% inflation, so your money slowly loses buying power even though the balance grows. That doesn’t make FDs bad. They are excellent for an emergency fund, money needed in the next few years, and anything you cannot afford to see fall. They are less suited to long-term growth for people in high tax slabs.
For regular income from a lump sum, an SWP from a mutual fund is taxed differently: only the profit part of each withdrawal is taxed.
Frequently asked questions
How is FD interest taxed in India?
It is added to your total income and taxed at your slab rate, each year it is earned. Under the new regime, if your total taxable income including the interest stays within ₹12 lakh, there is no tax.
Is TDS on FD my final tax?
No. TDS of 10% is an advance. Your actual tax depends on your total income. You pay any shortfall, or get a refund, when you file your return.
When can I submit Form 15G or 15H?
Form 15G is for people below 60 whose tax on total income for the year is nil and whose income is within the basic exemption limit; Form 15H is for people aged 60 or more whose tax on total income is nil. Submit it to each bank at the start of the financial year.
Is interest on a cumulative FD taxed only at maturity?
No. Interest is taxable each year as it accrues, even if it is paid out only at maturity. Many people declare it all in the maturity year by mistake.
Do senior citizens pay tax on FD interest?
Only if their total income, including the interest, crosses the taxable limit. Senior citizens get a higher TDS limit of ₹1 lakh of interest per bank per year.
What does your FD keep after tax?
Enter your deposit and your yearly income to see the tax and the real return.
Open the FD calculator →Estimates under the new regime, Tax Year 2026-27, with quarterly compounding and 6% inflation. Tax on the interest is worked out on top of the salary or pension shown. Rates are examples; check your bank. Please confirm with a CA for your situation.