Tax on FD Interest

Calculate actual post-tax return on Fixed Deposits. Bank deducts 10% TDS when FD interest exceeds Rs 40,000/year. Find your effective post-tax FD yield and compare with tax-free alternatives.

Tax on FD Interest

See your real post-tax FD yield

FD amount Rs 5L
Rs
Interest rate 7.50%
% p.a.
Tenure 3 yr
years
Your income tax slab
Net post-tax interest
---
After all taxes
Total interest earned
---
Total tax paid
---
Pre-tax yield---
Post-tax effective yield---
Net interest Tax Principal

TDS threshold: Rs 40,000/year (Rs 50,000 for senior citizens). Bank deducts 10% TDS; balance payable via ITR.

FD returns — pre-tax vs post-tax breakdown
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ThriftRupee Insight

A 7.5% FD looks attractive — but at the 30% tax bracket, your effective post-tax yield is just 5.25%. Compare that to PPF at 7.1% (fully tax-free) or debt mutual funds. For short-term goals, FDs are still useful; for long-term wealth, tax efficiency matters enormously.

Tax on Fixed Deposit Interest in India

Interest earned on fixed deposits is fully taxable as "Income from Other Sources" at your applicable income tax slab rate. There is no flat tax rate — a person in the 5% bracket pays 5%, while someone in the 30% bracket pays 30% on the same FD interest. Banks deduct TDS at 10% when your total FD interest with that bank crosses Rs 40,000 per year (Rs 50,000 for senior citizens).

How bank TDS on FD works

Your bank deducts 10% TDS when annual FD interest exceeds the threshold. However, this is not your final tax — it is only an advance deduction. If you are in the 30% slab, you owe an additional 20% to the government, which you pay via ITR or advance tax. If you are in a lower slab (5%), you get a refund of the excess TDS when you file your ITR.

How to avoid TDS on FD

If your total annual income is below the basic exemption limit, you can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) to your bank. The bank will then not deduct TDS. Important: this is a declaration that your income is below the taxable limit — submitting it when your income is actually taxable is a punishable offence.

FD vs PPF vs debt funds — post-tax comparison

At the 30% slab, a 7.5% FD gives an effective post-tax yield of just 5.25%. Compare this with PPF at 7.1% fully tax-free, or ELSS which targets 12–15% pre-tax returns (12.5% LTCG tax above Rs 1.25L). For short-term liquidity needs, FDs are still useful. But for wealth building over 3+ years, tax-efficient alternatives significantly outperform FDs in the 20–30% slab.

Frequently asked questions

Is FD interest taxable?▼
Yes. FD interest is fully taxable as "income from other sources" at your slab rate. Banks deduct TDS at 10% when annual interest exceeds Rs 40,000 (Rs 50,000 for senior citizens). If your slab rate is 30%, you owe additional 20% tax (30% minus 10% TDS already deducted).
How do I avoid TDS on FD?▼
If your total income is below the taxable limit, submit Form 15G (below 60 years) or Form 15H (senior citizens) to your bank. This prevents TDS deduction. Note: this doesn't exempt the interest from tax — it just avoids TDS. You must still declare it in your ITR if income is above basic exemption.
Is FD interest in SBI or post office tax-free?▼
No. Interest from all bank FDs including SBI, post office time deposits (except some small savings schemes) is fully taxable at slab rate. Only PPF, SSY, and certain government savings schemes offer EEE status where interest is tax-free.

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