How is TDS Calculated on a Fixed Deposit?

TDS is a tax that banks and other financial institutions deduct directly from the interest income you earn on your FD, provided it exceeds a certain threshold in a financial year. The standard TDS rate is 10%, which is applied to the entire interest amount once it exceeds the specified limit. A higher rate of 20% is applied if you have not furnished your Permanent Account Number (PAN) and if PAN is not linked with Aadhaar as per the bank's record. It's crucial to note that TDS is a pre-payment of your income tax liability, not a final tax. The actual tax you owe depends on your total income and your applicable tax slab, which is determined when you file your Income Tax Return (ITR).

What is TDS on FD Interest for General and Senior Citizens?

The TDS exemption limits differ for general citizens and senior citizens, reflecting consideration for the financial needs of older individuals.

• General Citizens (below 60 years): The TDS threshold for this group is ₹50,000. If the total interest earned from all your FDs with a single bank exceeds ₹50,000 in a financial year, the bank will deduct TDS.

• Senior Citizens (60 years and above): Senior citizens benefit from a higher TDS exemption limit of ₹1,00,000. This provision, along with other tax benefits, is designed to provide greater financial relief for retirees and elderly individuals.

It is important to remember that this threshold applies to the total interest earned from all fixed deposits you hold with a particular bank or financial institution. If you have FDs across several banks, each bank will calculate TDS based on the interest earned on deposits held with them.

How to Avail TDS Waiver on an FD?

If your total annual income is below the taxable limit, you can prevent the bank from deducting TDS by submitting a self-declaration form. This is a powerful tool to ensure you receive the full interest amount without having to wait for a tax refund later.

• Starting 1 April 2026, unified Form 121 replaces the existing Form 15G and 15H under Section 393(6) of the Income-tax Act, 2025, read with Rule 211 of the Income-tax Rules, 2026.

• Form 121 is a unified self-declaration used by resident individuals (including senior citizens) and HUFs to prevent TDS on income like interest and dividends when their total tax liability is nil.

To avail of the TDS waiver, these forms must be submitted to your bank at the beginning of each financial year or when you open a new fixed deposit. It's advisable to submit a separate form for each bank where you have FDs.

What is the Purpose of Form 121?

The primary purpose of Form 121 is to enable eligible individuals to receive their full FD interest without any TDS deduction. By certifying that your total tax liability for the financial year will be zero, you are instructing the bank not to deduct tax at the source. This is particularly beneficial for retirees, students, or other individuals with low taxable income, as it improves cash flow and eliminates the administrative hassle of claiming a refund. It is vital to note that submitting these forms does not mean your income is tax-exempt; it only prevents the deduction of TDS. You must still declare the interest income in your ITR.

Understand the TDS on FD with an Example (Only described for illustration purpose)

To put these rules into perspective, let's consider a few practical examples.

Scenario 1: General Citizen

• Investor: Mr. Ankit, aged 45.

• Investment: A fixed deposit of ₹6,00,000.

• Interest Rate: 8.5% per annum.

• Annual Interest Earned: ₹52,503.

In this case, Mr. Ankit's annual interest income of ₹52,503 exceeds the TDS threshold of ₹50,000 for general citizens. The bank will deduct TDS at 10% on the total interest amount.

• TDS Calculated: 10% of ₹52,503 = ₹5,250.

• Interest Credited to Account: ₹52,503 - ₹5,250 = ₹47,253.

If Mr. Ankit's total income is below the basic exemption limit, he can submit Form 121 to the bank to prevent this deduction. He can then claim a full refund of the TDS deducted when he files his ITR.

Scenario 2: Senior Citizen

• Investor: Mrs. Sharma, aged 68.

• Investment: A fixed deposit of ₹12,00,000.

• Interest Rate: 8.75% per annum.

• Annual Interest Earned: ₹1,08,195.

Mrs. Sharma's annual interest income of ₹1,08,195 is above the senior citizen TDS threshold of ₹1,00,000. The bank will deduct TDS at a 10% rate.

• TDS Calculated: 10% of ₹1,08,195 = ₹10,820.

• Interest Credited to Account: ₹1,08,195 - ₹10,820 = ₹97,376.

However, since Mrs. Sharma is a senior citizen, she can use Form 121 to stop the TDS deduction, provided her final tax liability is zero.

As per new tax Act Income Tax 2025, under Section 194A (or Section 393 in the new Act), after submitting form 121, the TDS will be null on Term Deposit interest of up to ₹4 Lakh for General Citizen and ₹12 Lakh for Senior Citizen. Understanding these rules is not just about avoiding deductions; it's about making informed investment decisions and ensuring you are maximizing your returns while staying compliant with tax regulations.