FD TDS in India 2026: Why Your Payout Is Less Than You Expected

You run the numbers on a fixed deposit, the bank quotes a neat interest figure, and then the money that actually lands in your account is smaller than you worked out. I hit this the first year I started parking part of my portfolio in FDs alongside my SIPs, and the answer is almost always the same three letters: TDS. Most people have heard of it but do not really know how it works. Run your own number first in the FD calculator, then read on so the deduction never surprises you again.

What TDS on an FD actually is

TDS stands for Tax Deducted at Source. Instead of waiting for you to pay tax on your interest at the end of the year, the bank deducts a slice before it credits the interest and sends that slice to the government against your PAN. It is collected at the point the income is generated, which is why it is called "at source".

The single most important thing to understand: TDS is not your final tax. It is an advance deduction. When you file your income tax return (ITR), the amount the bank already deducted is set against your total tax for the year. If too much was taken, you get a refund. If you owe more, you top it up. So TDS is a prepayment you reconcile later, not an extra cost.

The thresholds from 2025-26 onwards

A bank only starts deducting TDS once your interest from that bank crosses a yearly threshold. This is where a lot of outdated articles trip people up. The threshold was raised in April 2025, so the old ₹40,000 figure you might still read online is wrong for 2026.

For a regular individual, the threshold is now ₹50,000 of interest per year, per bank. For senior citizens aged 60 and above, it is ₹1,00,000 per year, per bank. The key words are "per bank". If you hold deposits at three different banks, each one applies the threshold to only its own interest, not your combined total. So spreading deposits across banks gives you separate thresholds at each one. That can delay deduction, but remember it does not reduce the tax you owe, because all of the interest is still taxable.

The rate: PAN makes a big difference

Once you cross the threshold, the deduction rate depends on one thing: whether the bank has your PAN. Under Section 194A, with your PAN on file, TDS is deducted at 10% of the interest. Without it, the rate jumps to 20%. There is no upside to withholding your PAN, so always make sure the bank has it linked to your FD. The extra 10% you lose by not furnishing PAN is painful to claim back and entirely avoidable.

Form 15G and Form 15H: stopping TDS legally

If your total income for the year is below the taxable limit, having the bank deduct TDS and then reclaiming it months later is just an interest-free loan to the government. You can avoid that with a simple declaration.

Form 15G is for individuals below 60 whose income is below the basic exemption limit. Form 15H is for senior citizens aged 60 and above. You submit the right form to your bank at the start of the financial year, and the bank stops deducting TDS for that year. One caution: these forms do not make the interest tax-free. They only stop the advance deduction. If your income turns out to be taxable, you still report and pay on the interest in your return. From FY 2026-27, a single Form 121 under the new Income Tax Act 2025 is set to replace both 15G and 15H, so expect the paperwork to merge.

New regime or old regime, the interest is still taxable

A common myth is that the new tax regime somehow exempts FD interest. It does not. FD interest is fully taxable under both the new and the old regime. It gets added to your total income and taxed at your slab rate.

Take a quick example. Say you earn ₹1,00,000 of FD interest in a year and you fall in the 20% slab. That interest adds ₹20,000 to your tax bill, regardless of which regime you picked. The only difference is that senior citizens on the old regime can claim a Section 80TTB deduction (covered next), which the new regime does not offer. For everyone else, the interest is plain slab-rate income. If part of your portfolio is in market instruments, the tax treatment is different again, which is worth checking in the capital gains calculator.

The senior citizen advantage

Senior citizens get two real benefits that make FDs far more tax-efficient for them. The first is the doubled TDS threshold of ₹1,00,000 per bank, so deduction starts much later. The second is Section 80TTB, available under the old regime only, which lets a senior citizen deduct up to ₹50,000 of interest income (from FDs, RDs and savings accounts combined) straight off their taxable income.

Put together, a retired parent living mainly off deposit interest can shelter a meaningful chunk of it. If FDs form the core of a retirement income plan, also look at the Senior Citizen Savings Scheme, which often pays a higher rate. Project it in the SCSS calculator and weigh the two side by side in our SCSS vs FD comparison before locking money in.

How to check what was actually deducted

Never assume the bank deducted the right amount. There are three quick ways to verify. Your Form 26AS on the income tax portal shows every TDS entry reported against your PAN (this is being folded into the AIS and the new Form 149 structure under the Income Tax Act 2025). The Annual Information Statement, or AIS, gives a fuller picture of your interest income across banks. And your bank's own FD interest certificate or statement shows the deduction at the source.

Cross-check all three before you file. Errors happen, especially when a bank has an outdated PAN or splits interest across branches. Catching a mismatch early is far easier than fighting for a refund afterward.

The practical takeaway

FDs are a fine, predictable home for the conservative slice of a portfolio, but treat the headline rate as pre-tax. Keep your PAN linked, submit Form 15G or 15H if your income is below the limit, remember the interest is taxable in both regimes, and reconcile the TDS in your return. Do that and the gap between the quoted rate and the money you keep stops being a mystery. Run the post-tax number in the FD calculator before every new deposit and you will plan with the real figure, not the optimistic one.

⚠️Financial Disclaimer: This article is educational and not financial or tax advice. TDS thresholds, rates and tax rules can change with each Budget. Verify current rules with the Income Tax Department at incometaxindia.gov.in (Section 194A on TDS on interest) and consult a qualified tax adviser for your situation.