How Much Amount of FD Interest is Tax-Free?

If there was a list of the best investment schemes with tax benefits, then FDs would top that list. A fixed deposit would let you exploit the complete potential of 80C to deduct Rs. 1.5 lakhs from your taxable income. This is also a scheme that makes sure your capital is protected, along with interest. 

Here, we will discuss your taxes on FDs and how much is tax-free. Find out how a Fixed deposit can help you when it comes to paying income taxes.

What is the Income Tax on Interests?

The interest on income from FDs is completely taxable. Add it to your complete income and get taxed at your tax slab rates that are applicable to your total income. It has to be reported under – Income from other sources in your income tax return.

Banks will deduct tax at source at the time of crediting the interest into your account, and when the amount is more than Rs. 40,000. Also, you have to note a point; it would be more than Rs. 50,000 in the case of senior citizens.

So, do not forget that TDS is deducted at the time of credit of interest and not when the FD matures. If you have an FD for three years, the bank will deduct TDS at the end of every year. The interest of the bank, let alone HDFC bank FD interest rates 2022, SBI, or any other – the same rule applies to all bank FDs.

If you are still in a daze trying to put the pieces together, let us discuss this a little more in-depth. 

What is TDS Associated with FDs?

Banks will deduct TDS on your FD interest during the transfer of the interest amount to your respective account. It is quite crucial to note that a TDS deduction is made each year when the interest is earned and not when the interest has been received after the period of FD maturity. This amount will form a part of your total tax liability.

Are you still confused? Don’t worry; here is something else that will help you out.

For instance:

You have a fixed deposit for four years with HDFC. Your FD will give you an interest of Rs. 45,000 for a year, which will attract a 10% TDS deduction. Therefore, Rs. 4,500 will be deducted each year for a period of four years instead of deducting Rs. 18,000 at the end of four years.

How Much Will the TDS be?

TDS applicable on your FDs interest is 10%. So, if you get an interest amount of Rs ten thousand for a year, then you will have no TDS deducted. It will only be deducted after it crosses the threshold of Rs. 45,000. 

What Happens if the Threshold is Not Crossed, but TDS has Been Deducted?

There are times when the total tax liability you have is zero, but still, the bank deducted your TDS. What will happen now? Do not worry or panic; it happens. This will happen as the interest payout is more than Rs. 10,000 from the branch. The TDS refund needs to be filed by such people, so you get back your money. The government introduced Form 15G and Form 15G, so you can easily file TDS refunds. 

The above-mentioned declaration forms will be valid only for a year, and a new form needs to be filled and submitted each year for low or nil deduction of TDS on FD interest.

Do you want to change your FD into a scheme that saves you the most tax? Here is how you can do it.

How to Change your FD Account to a Tax-Saving Asset?

These are a few ways you can have your FD act as a tax-saving asset:

You can file or utilize forms 15G or 15H if your total income for the year is less than Rs. 2.5 lakhs. This is because the interest on your FD is not taxable; the bank would not deduct TDS. You would not be obligated to pay any income tax on the FD interest.

Instead of a bank, you could create your FD at a post office location. On post office fixed deposits, tax on FD is deducted, but not like banks do. The FD interest rate is lower at a post office, and you can also save up on taxes.

You could deposit money in FDs under your parents, spouse, or kid’s name. The income tax on interest on FD income is calculated for every person on the slab that they fall into. It would not be possible to save or minimize taxes if you open a fixed deposit at various branches and banks.

Why Choose an FD to Invest?

FDs have been known to be one of the most common lanes of investment for quite a long time. It is known to be safe, with good returns – and most importantly, it is known to be the scheme with the best tax benefits. 

You could choose to invest in the scheme, in order to gain more returns when you are not too fond of high risks.


An FD has a lot more than just some interest to offer. The scheme is safe; it has assured returns, tax benefits, and also senior citizen benefits. When you are looking for tax instruments that would suit your risk-averse attitude – an FD would be the best choice.

Fixed Depositincome taxTax-Free