How Is TDS Deducted on FD Interest, and When Does Form 15G Help?

The interest a fixed deposit earns is taxable income, and for a lot of savers the first hint of that is a payout smaller than the interest they expected. The bank has deducted tax at source and passed it to the government before the money ever reached the account.

Table of Contents

• How the bank works out TDS on your deposit interest
• What is the interest threshold before TDS kicks in?
• TDS isn’t an extra tax, and why that matters
• When does Form 15G (or 15H) actually help?
• Getting the declaration right and on time
• What if TDS was already deducted?

Two things are worth getting straight here: exactly when and how the bank takes that tax, and the short declaration that can stop it if your income is low enough to owe nothing at all. Handle both correctly and you either avoid the deduction upfront or reclaim it without fuss.

How the bank works out TDS on your deposit interest

Tax deducted at source, or TDS, is the bank collecting a slice of tax on your behalf as the interest is credited. It applies once the interest you earn crosses a set limit in a financial year, and it’s worked out across all the deposits you hold with that bank, not each one separately.

The rate is straightforward. If your PAN is registered with the bank, it deducts 10% of the interest; if it isn’t, the rate jumps to 20%, which alone is a good reason to keep your PAN updated on every FD you open. The deduction happens when the interest is credited, whether that’s periodically or at maturity, and the bank pays it straight to the tax department against your PAN.

What is the interest threshold before TDS kicks in?

There’s a floor below which no TDS is taken at all. For most individuals, the bank only starts deducting once your interest from that bank passes ₹40,000 in the year, with a higher limit of ₹50,000 for senior citizens.

These figures are set in the annual budget and have been revised upward more than once, so it’s worth confirming the current year’s limit rather than assuming. The threshold is also per bank, which is why spreading deposits across banks can keep each one below the line, though the interest remains taxable whether or not TDS is deducted. Watching the interest credited to your account, which you can see in your UPI app or bank statement, tells you when you’re nearing the point where deductions begin.

TDS isn’t an extra tax, and why that matters

A common worry is that TDS is money lost, an additional charge on top of your tax bill. In fact it’s neither. The deduction is an advance instalment of the tax you owe anyway, collected early and credited to your account with the department.

Every rupee deducted shows up against your PAN in your Form 26AS and annual information statement, and when you file your return, it’s set off against your total tax for the year. If the TDS taken is more than you actually owe, the excess comes back as a refund; if it’s less, you top up the difference. So the deduction changes the timing of when tax is paid, not the amount.

When does Form 15G (or 15H) actually help?

Form 15G is useful in one specific situation: when your total income for the year is below the taxable limit, so you’ll owe no tax at all. In that case, TDS just parks your money with the department until you claim it back, and the form lets you skip that.

By submitting Form 15G, you declare that your income is below the threshold and your tax liability is nil, and the bank then credits your interest without deducting anything. Senior citizens use Form 15H, which works the same way but only requires that your final tax comes to zero, without the income condition attached. If you do owe tax, neither form applies, and submitting one anyway is a false declaration that carries penalties, so they help only when you genuinely owe nothing.

Getting the declaration right and on time

Timing is where these forms are most often fumbled. The declaration covers a single financial year, so it needs to go in near the start of the year, ideally in April, and be renewed every year for as long as it applies.

Submit it to each bank where you hold deposits, since one bank’s copy does nothing for another. Most banks now let you file it through net banking or their app in a couple of minutes, which is quicker than a branch visit and leaves a record. Fill in your expected income honestly, keep the acknowledgement, and the interest for that year comes through untouched.

What if TDS was already deducted?

Sometimes the deduction happens before you get a chance to file the form, or you only realise afterwards that your income was below the limit. The money isn’t lost. Any TDS taken sits to your credit with the department, and you reclaim it by filing your income tax return for the year and showing that your total tax due was lower than what was deducted.

The refund arrives after your return is processed, which is slower than avoiding it upfront but recovers every rupee. For the future, submit the declaration early next year if you still qualify. If your income is below the taxable limit, that one form each April keeps the deposit interest reaching you in full; if it isn’t, the return is where the two figures are reconciled.