Tax on savings account, FD and recurring deposit interest

Interest from a bank or post office is taxed under "income from other sources" at your slab rate. It does not get any concessional rate. TDS deducted by the bank is only an advance – if you are in the 20% or 30% slab, you owe more at the time of filing.

Types of interest and how each is taxed

TDS thresholds

From 1 April 2025, TDS on interest by banks, co-operative banks and the post office applies only if interest exceeds ₹50,000 a year (₹1,00,000 for senior citizens) per bank. For other payers (e.g. company deposits) the threshold is ₹10,000. The rate is 10% with PAN and 20% without PAN. Under the Income-tax Act, 2025 this is an entry in Section 393.

Form 15G and 15H

• Form 15G – for residents below 60 whose estimated tax on total income for the year is nil and whose interest is below the basic exemption limit.
• Form 15H – for resident senior citizens whose estimated tax is nil (after rebate).
• Submit at the start of the year to each bank. Budget 2026 allowed these declarations to be filed once with a depository and passed on to payers, as reported – check your bank's process.

Worked example: cumulative FD

Example: Mrs Saini, aged 62, deposits ₹10,00,000 in a 3-year cumulative FD at 7.5% (compounded quarterly) on 1 April 2025. Approximate interest accruing: Year 1 ₹77,100; Year 2 ₹83,000; Year 3 ₹89,500.

If she has other income, the bank's non-deduction of TDS does not mean the interest is tax-free – she must report it each year. Reporting the full ₹2.49 lakh in the year of maturity would push her into a higher slab that year and cause AIS mismatches in the earlier years.

Worked example: young salaried saver

Example: Arjun (30), new regime, salary ₹13,00,000, FD interest ₹60,000 (TDS ₹6,000) and savings interest ₹9,000.

• Taxable income = ₹13,00,000 – ₹75,000 + ₹69,000 = ₹12,94,000.
• Tax on slabs = ₹60,000 + 15% of ₹94,000 (₹14,100) = ₹74,100. Marginal relief does not apply (income is well above ₹12.7 lakh).
• Cess 4% = ₹2,964; total ₹77,064. Employer TDS plus bank TDS of ₹6,000 will be credited.

Without the interest, his income would have been ₹12,25,000 and marginal relief would have limited his tax to ₹25,000 + cess = ₹26,000. The ₹69,000 of interest therefore adds about ₹51,000 of tax – an effective rate above 70%, because it takes him out of the marginal-relief band. In the new regime 80TTA is not available. People just above ₹12 lakh should plan interest income carefully.

Joint accounts

Interest is taxable in the hands of the person whose money was deposited, not automatically the first holder. Banks report and deduct TDS against the first holder's PAN. If the deposit belongs to another holder, explain it and claim TDS credit appropriately – an application to the bank to issue the certificate in the right name helps.

Interest on income-tax refund

Interest received on an income-tax refund (Section 244A) is also taxable as income from other sources in the year of receipt.

Common mistakes

• Ignoring savings interest because no TDS is deducted.
• Reporting only TDS-deducted FDs.
• Submitting Form 15G when total income is above the exemption limit.
• Claiming 80TTA on FD interest – it is only for savings account interest.

Key takeaway

All bank interest is taxable at slab rates; the higher TDS thresholds mean many people now receive interest without TDS, so self-reporting matters more. Match your AIS and report accrued interest year by year. For help with interest-heavy returns of senior citizens, see our ITR filing service.