Tax Implications of Fixed Deposits: Understanding the Details

Tax Implications of Fixed Deposits

Who does not have a Fixed Deposit? From beginners to pro financial experts! All reply on the best and safety method of monetary repository- Fixed Deposits. We do agree upon the low rates of interest but no body can bet on its security and regular interest flows! But do you know that you can have tax implications upon your F.D known as “Income from other sources” and its interest? Lets study how we can maximize our returns and lower our taxes in this article!

  • TDS (Tax deduction at sources)

If you have your interest inflow from your fixed deposits more than ₹40,000 or ₹50,000 as a senior citizen, the bank deducts 10% from your interest all together. For example- Interest is ₹60,000 then tax on it shall be ₹6,000, leaving you with ₹54,000.

Moreover, if you have not updated your KYC or PAN with your Bank they can deduct taxes from your F.D by 20%. Sticking to the same example, leaving ₹48,000 in hand.

Accordingly, you should assess your tax losses and preferably diversify your portfolio in other stocks or mutual fund.


There is a system of lock in period of 5 years of your deposits in F.D as a result of which you could claim deductions only above ₹1.5 lakh a year reducing aggressive tax on your interests(10%) without Section 80C of the Income Tax Act .


Under Section 80TTB and also being above the Section 80C, Seniors enjoy added benefit of Income Tax deduction only after ₹50,000 per year. It may be a good choice to deposit few of your savings in your parents account for added benefits.

  • POWER OF 15G/ 15H

Those who fall out of the taxable limit according to their yearly income can file a Form 15G for below 60 years and 15H for above 60 years, to avoid TDS. This is like an affidavit for acknowledgement of the fact that you do not fall under the tax paying bracket.

  • Basis of Accrual vs Receipt

You may choose to tax interest on FDs either actual or as receipt. Even if interest is not collected until maturity, tax is still due on the interest that is generated within a year under the accrual method. On the other hand, interest is only taxed when it is received on the receipt basis.