A Bank Fixed Deposit is a financial instrument provided by banks. It provides investors a higher rate of interest than a regular savings bank account, until the given maturity date. It is also known as a Term Deposit. They are considered to be pretty safe investments.

Interest on fixed deposits is liable to tax on the basis of annual accrual. That is, banks deduct TDS on interest income when it is accrued and not when the FD matures & interest is paid out.

For example, if one has a FD for 3 years, then banks will deduct TDS on the accrued interest at the end of each year.


Bank fixed deposits are taxable. That is no deductions are available. Only in the case of a special deposit having maturity period of 5 years is eligible for deduction under section 80C.

The interest earned from Bank fixed deposits in both the cases is taxable. They’re taxed at the same rate, as the rest of your income. The interest earned from Bank fixed deposits is recorded under the head ‘Income from other sources’.

If you deposit an amount in your FD, the interest will be taxed at the I-T slab rate applicable.

For example, if you fall under the 30% income tax bracket, you will have to pay 30% tax on the interest earned from your Fixed Deposit.

From 1st June, 2015 tax is deducted at the source on the interest income above Rs. 10,000 at a rate of 10%.

For example, if the interest earned does not exceed Rs. 10,000, then no TDS will be deducted on the interest.

The Tax Deducted at Source (TDS) exemptions for senior citizens have increased to Rs. 50,000 on bank fixed deposits.

Example of Taxation of Fixed Deposits:-

Mr. Sachin earns Rs. 15,000 as interest from his FD in a financial year. Thus, the calculation for taxation of interest income earned by Mr. Sachin will be as follows:-

If in the 5% Tax Bracket

If in the 20% Tax Bracket

If in the 30% Tax Bracket

Interest Accrued

Rs. 15,000

Rs. 15,000

Rs. 15,000

TDS @ 10%

Rs. 1,500

Rs. 1,500

Rs. 1,500

Total Tax Payable on Interest from FD

Rs. 750

Rs. 3,000

Rs. 4,500

Since, the TDS is more, Mr. Sachin is eligible for a refund of Rs. 750

Mr. Sachin has to only pay Rs. 1,500, as Rs. 1,500 has already been deducted as TDS.

Here also, Mr. Sachin has to only pay Rs. 3,000, as Rs. 1,500 has already been deducted as TDS.