By buld_online 
Fixed deposits (FDs) are considered one of the safest investment avenues in India. Their guaranteed returns make them a preferred choice for conservative savers. But what most people don’t realise is that FDs can quietly eat into your earnings—even if you never withdraw a single rupee.
“FD interest is taxable whether or not you actually receive it,” said Chartered Accountant Nitin Kaushik. “Most people assume they only need to pay tax when the money comes to them, but that’s not how the tax system works. The moment interest accrues, it’s considered income and reported by banks to the Income Tax Department.”
The issue becomes more complicated when annual FD interest crosses Rs 40,000 (or Rs 50,000 for senior citizens). In such cases, banks are legally required to deduct Tax Deducted at Source (TDS) automatically. This happens regardless of whether the depositor’s total income is taxable or not.
“This is where many low-income investors lose money unnecessarily,” Kaushik noted. “Even if someone’s total income is below the basic exemption limit, the bank still deducts TDS unless Form 15G or 15H is submitted in advance.”
Form 15G (for individuals below 60) and 15H (for senior citizens) are self-declaration forms that inform banks not to deduct TDS if the individual’s total income is below the taxable limit. “Submitting these forms annually before March 31 can prevent unwanted deductions and avoid the hassle of claiming refunds later,” Kaushik advised.
According to him, this small but crucial step is often missed. “Most people don’t keep track of how much FD interest they are earning across different accounts. Many aren’t even aware that TDS has been deducted until they check Form 26AS or AIS.”
Reclaiming that money requires filing an income tax return and waiting for a refund—something many small investors find burdensome.
Kaushik’s checklist for smart FD investors:
Track FD interest income from all bank accounts annually.
Check your total income against the basic exemption limit.
Submit Form 15G/15H at the start of every financial year to avoid TDS.
“FDs may be safe, but that doesn’t mean they’re always efficient,” Kaushik warned. “Without proper documentation and tax awareness, even safe investments can turn into silent money losers.”
FD taxation
Section 80TTB: Interest Deduction for Senior Citizens
Resident senior citizens who opt for the old tax regime can claim a deduction under Section 80TTB for interest earned on savings accounts, fixed deposits (FDs), and recurring deposits.
The maximum deduction allowed under this section is Rs 50,000 per financial year.
However, the deduction claimed cannot exceed the actual interest income earned during the year.
Section 80C: Deduction on FD Principal
Under the old tax regime, investments made in tax-saving fixed deposits with a minimum lock-in period of five years are eligible for deduction under Section 80C.
The maximum deduction allowed under Section 80C is Rs 1.5 lakh per year.
This includes the FD principal along with other eligible investments and expenses.
How is FD Interest Taxed?
The interest income earned from FDs is added to your total income and taxed as per your applicable income tax slab.
This interest is reported under the head ‘Income from Other Sources’ in the Income Tax Return (ITR).
Senior citizens under the old regime can claim a deduction for interest income under Section 80TTB, as mentioned above.
The principal invested in eligible 5-year FDs can be claimed under Section 80C, if applicable.