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The 2-Minute Summary
Almost everyone with a fixed deposit has encountered TDS on interest. This is one of the most personal TDS provisions. It affects salaried employees, retirees, and small investors who park money in bank FDs. The key distinction in this provision is between the payer. Banks, co-operative banks, and post offices have a higher threshold. All other entities like companies and NBFCs have a lower threshold. There is also a special higher threshold for senior citizens, which makes a meaningful difference for retirees living on interest income.
Example: Mohan, aged 66, earns Rs. 92,000 as FD interest from SBI in Tax Year 2026-27. Senior citizen threshold = Rs. 1,00,000. No TDS. If his interest were Rs. 1,05,000, TDS would apply on the full Rs. 1,05,000, not just the excess.
Under Income Tax Act 1961: Section 194A of the Income Tax Act 1961. Now Section 393(1) Sl. No. 5(ii) and 5(iii) under the 2025 Act. Thresholds unchanged.
At a Glance
| Item | Details |
| New Act Reference | Section 393(1), Sl. No. 5(ii) and 5(iii) of Income Tax Act 2025 |
| Old Act Reference | Section 194A of Income Tax Act 1961 |
| TDS Rate | Rates in force (as per applicable Finance Act) |
| Bank/PO/Co-op Bank threshold (general) | Rs. 50,000 per year |
| Bank/PO/Co-op Bank threshold (senior citizen) | Rs. 1,00,000 per year |
| Other entities threshold | Rs. 10,000 per year |
| When to Deduct | At credit or payment, whichever is earlier |
| Forms to avoid TDS | Form 15G (non-senior) or Form 15H (senior citizen) |
Two Sub-entries: Different Thresholds for Different Payers
| Sub-entry | Payer | Normal Threshold | Senior Citizen Threshold |
| Sl. 5(ii) | Banking company, co-operative bank, post office | Rs. 50,000 | Rs. 1,00,000 |
| Sl. 5(iii) | Any other person (company deposits, NBFC, etc.) | Rs. 10,000 | Rs. 10,000 |
The threshold is applied on aggregate interest from all branches of the same bank combined, if the bank uses core banking solutions. For banks not on core banking, the threshold is computed branch by branch.
Example: Nisha has FDs at three branches of HDFC Bank. Total interest across all branches = Rs. 65,000. Since HDFC uses core banking, the bank aggregates interest across branches. This exceeds Rs. 50,000, so TDS applies.
Example: Rajesh deposits Rs. 5 lakh with an NBFC at 10% interest. Annual interest = Rs. 50,000. Since the threshold for non-bank entities is only Rs. 10,000, TDS applies on the full Rs. 50,000.
When TDS Does NOT Apply: Exempt Cases
Section 393(4) Table lists several situations where no TDS is required on interest even if it exceeds the threshold:
- Interest paid by a co-operative society to its own members
- Interest paid by one co-operative society to another
- Interest on deposits with a primary agricultural credit society or primary credit society
- Interest paid by the Central Government under any law (income tax refund interest, etc.)
- Interest on deposits under notified government schemes
- Interest on savings bank deposits (not time deposits) with a banking company
- Interest on motor accident compensation awarded by a tribunal (up to Rs. 50,000 for non-individuals)
- Interest paid by a firm to its partners
Interest on savings accounts is specifically exempt from TDS here. Only time deposits (FDs, recurring deposits) attract TDS. Your savings account interest, however large, is paid without TDS deduction at source.
Form 15G and Form 15H: How to Avoid TDS
If your total income for the year is expected to be below the basic exemption limit, you can submit a self-declaration to the bank at the start of the year to receive interest without TDS deduction.
- Form 15G: For individuals below 60 years and HUFs whose total income is expected to be below the basic exemption limit.
- Form 15H: For senior citizens (60 years or above) whose tax liability on estimated income is nil.
Submit these forms at the start of the Tax Year, ideally in April. If submitted mid-year after TDS has already been deducted, the forms apply only to future payments.
Example: Sudha, aged 72, earns Rs. 80,000 interest from bank FDs and has no other income. Her total income is below the basic exemption limit. She submits Form 15H to her bank in April. No TDS is deducted throughout the year.
Filing Form 15G or 15H with false information is an offence under the Act. Submit only if you genuinely expect your income to be below the taxable limit.
Practical Compliance Checklist
- At the start of every Tax Year: Submit Form 15G or 15H to your bank if your total income is expected to be below the exemption limit. Do it in April to cover the full year.
- If TDS has already been deducted: Claim it as TDS credit in your ITR. If your tax liability is lower than the TDS deducted, you receive a refund.
- If you have FDs spread across multiple banks: Each bank applies its own threshold independently. TDS from one bank does not affect the threshold at another bank.
- If you invest in company deposits: The threshold is only Rs. 10,000, much lower than bank FDs. Keep this in mind when computing likely TDS.
- If you are a co-operative society: Interest paid to your own members is exempt from TDS. However, if your turnover exceeds Rs. 50 crore, this exemption may not apply. Verify the current position.
Interest TDS affects lakhs of depositors every year, especially senior citizens relying on FD income. Submitting Form 15H at the start of the year is the simplest way to ensure uninterrupted cash flow. If TDS does get deducted, it is not lost. It waits in your Form 26AS to be claimed back at filing.
