Earned Interest From FDs? Check Your Tax Liability Before Filing ITR

Fixed deposits (FDs) may offer certainty of returns, but the tax treatment of the interest earned is often misunderstood.

Many depositors assume that once the bank has deducted tax deducted at source, or TDS, there is nothing more to pay. That is not always the case. TDS is only a tax collected in advance. The actual tax liability on FD interest depends on the taxpayer’s total income and the slab rate that applies to them.

This makes it important to calculate the total interest earned during the year before filing the income tax return (ITR).

Add Interest From All Deposits

Those holding FDs with more than one bank should first add up the interest earned across all deposits.

The figures can be checked through bank statements and annual interest certificates. It is also useful to compare them with Form 26AS, the Annual Information Statement (AIS) and the Taxpayer Information Summary (TIS), particularly if TDS has been deducted.

FD interest is generally reported under “Income from Other Sources.”

The amount to be disclosed is the gross interest earned, not the net amount received after TDS.

Suppose a depositor earns Rs 80,000 as interest during the year and the bank deducts Rs 8,000 as TDS. The taxpayer still has to report Rs 80,000 as income. The Rs 8,000 already deducted can be adjusted against the final tax liability.

TDS And Final Tax May Be Different

Banks generally deduct TDS at 10 per cent when interest crosses the prescribed limit, and the depositor has furnished PAN.

For FY 2025-26, the threshold is Rs 50,000 for most depositors and Rs 1 lakh for senior citizens in the case of interest paid by banks, co-operative banks and post offices.

But the 10 per cent TDS rate does not decide how much tax a person ultimately owes.

If the taxpayer falls in a higher income tax slab, there could be additional tax to pay on the FD interest. Conversely, where too much tax has been deducted, the excess may be claimed as a refund while filing the return.

This is why depositors should not treat the TDS entry in their bank statement as the final tax calculation.

Senior Citizens May Get A Deduction

Resident senior citizens who opt for the old tax regime can claim a deduction of up to Rs 50,000 under Section 80TTB on eligible interest income, subject to the prescribed conditions.

Those using the old regime may also claim a deduction under Section 80C for investments in eligible five-year tax-saving FDs, within the overall limit of Rs 1.5 lakh. The interest earned on such deposits, however, remains taxable.

Before filing the ITR, taxpayers should check whether all FD interest has been included and whether the TDS claimed matches Form 26AS. A mismatch or missed interest entry can lead to questions later, especially when the tax department already has the information reported by the bank.