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  Desk
  








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  2026-07-20 07:54:00

As millions of Indian taxpayers prepare their Income Tax Returns (ITR) for the Financial Year 2025-26, ensuring complete disclosure of all income streams is vital. While salary, business revenues, and professional fees remain standard focus areas, interest earned from Fixed Deposits (FDs) is frequently overlooked or misreported.

Failing to declare FD interest—or relying on the misconception that bank TDS (Tax Deducted at Source) satisfies your final tax obligation—can trigger an automated tax notice or delay processing refunds. This guide breaks down reporting rules, deduction limits, and operational changes under the statutory provisions.

Disclosing Fixed Deposit Interest in Your ITR

Interest accrued on fixed deposits is classified under the head Income from Other Sources. This interest is added directly to your gross total income and taxed according to your applicable tax slab rate. Taxpayers should note that FD interest must be declared on an accrual basis every financial year, even if the deposit has not yet matured or the interest has not been credited to your savings account.

To ensure your ITR matches the Income Tax Department’s centralised records, verify your total interest across four key documents before filing:

Bank Interest Certificates: Formally issued by banks detailing total interest accrued across active term deposits during the financial year.

Bank Statements: Highlighting periodic interest credits.

Annual Information Statement (AIS) & Taxpayer Information Statement (TIS): Available via the Income Tax e-filing portal, these reflect interest data fed directly by reporting financial entities.

Form 26AS: Showing the exact TDS deducted by financial institutions against your Permanent Account Number (PAN).

Tax Deductions on Fixed Deposits (Old vs. New Regime)

Taxpayers can lower their net tax liability on FDs depending on their tax regime choice and age bracket:

Section 80C (Principal Amount): Under the Old Tax Regimeinvesting in a 5-year tax-saving FD qualifies for a deduction of up to ₹1.5 lakh on the principal amount deposited. This deduction applies exclusively to the principal sum; the interest earned throughout the 5-year tenure remains fully taxable.

Section 80TTB (Senior Citizens): Resident senior citizens (aged 60 and above) opting for the Old Tax Regime can claim a deduction of up to ₹50,000 on total interest income earned across savings accounts, fixed deposits, and recurring deposits (RDs).

TDS Rules on Fixed Deposits (Section 194A)

Under Section 194A of the Income Tax Act, banks and post offices deduct TDS on FD interest at a standard rate of 10%. The statutory deduction thresholds per financial year stand at:

Standard Taxpayers (Under 60): ₹50,000 total interest income across a bank’s branches.

Resident Senior Citizens: ₹1,000,000 total interest income.

Replacing Form 15G & 15H: Transitioning to the Unified Form 121

If your total estimated income for the financial year falls below the taxable threshold and your net tax liability is zero, you can prevent banks from deducting TDS upfront.

Under the Income Tax Act, 2025the legacy dual-form structure (Form 15G for non-senior citizens and Form 15H for senior citizens) has been phased out. Replacing both is the unified Form 121effective from April 1, 2026.

Single Unified Format: Form 121 serves as a single self-declaration form for all eligible resident taxpayers, regardless of age.

Submission Timing: Form 121 must be submitted to each bank at the beginning of the tax year or before the first interest credit to prevent the deduction.

Recovering Unadjusted TDS: If a bank has already deducted TDS before you submitted Form 121, the bank cannot reverse the tax. You must file your ITR to adjust the deducted TDS against your overall tax liability and claim a direct refund from the Income Tax Department.