Tax on FD Interest: TDS Rules, Form 121 and What You Really Pay

Most people think the bank's TDS is the tax on their FD. It isn't. The 10% the bank cuts is only an advance. Your real tax on FD interest depends on your slab, and for a lot of families that means either paying more at ITR time or, the opposite, waiting months for a refund of money that never needed to be cut.

From 1 April 2026 a few names also changed. Forms 15G and 15H are gone, replaced by a single Form 121, and the Income-tax Act, 2025 now says "tax year" instead of "previous year". The basic rules on FD interest are the same, though. Below they are worked through for a few typical depositors, from a salaried person sitting near the ₹12 lakh line to a retiree with FDs in two banks.

Your slab decides the tax, not the bank's 10%

FD interest gets no special treatment. It is added to your other income (salary, pension, rent) and taxed at your slab, same as RD and post office deposit interest. No lower rate, no yearly exemption.

What matters is your top slab. Every rupee of interest is taxed at that rate, plus 4% cess.

• A ₹15.25 lakh salary in the new regime: tax ₹1,01,400. Add ₹1 lakh of FD interest and it becomes ₹1,17,000. That ₹1 lakh of interest cost ₹15,600, or 15.6%.
• In the 30% slab (above ₹24 lakh in the new regime, above ₹10 lakh in the old), every ₹1 lakh of interest costs ₹31,200.

Now the trap that catches a lot of people in the new regime. If your taxable income stays at ₹12 lakh or below, the rebate (old 87A, now section 156) wipes out the tax completely. Cross ₹12 lakh, even slightly, and that cushion is gone. Take a ₹12.25 lakh salary: after the ₹75,000 standard deduction, taxable income is ₹11.5 lakh and tax is nil. Now add ₹1 lakh of FD interest. Taxable income becomes ₹12.5 lakh and the income tax calculator shows ₹52,000 of tax. Even after marginal relief, ₹1 lakh of interest has cost you more than half of itself. If you are close to ₹12 lakh, plan your FDs around it.

Cumulative FD: tax every year, not at maturity

With a cumulative FD you get nothing till maturity, so many people assume the tax also comes at the end. It doesn't work that way. Banks treat the interest as earned every year, cut TDS on it every year and report it every year. Technically an individual can follow the cash basis and show it all at maturity, but then your TDS credits and your income sit in different years, and that mismatch is a headache. Most CAs will tell you to show it yearly. So would we.

Here is ₹10 lakh at 6.5% for five years, compounded quarterly, on the FD calculator. It matures at ₹13,80,420.

Every year's interest is over ₹50,000, so TDS is cut every year, though not one rupee has reached you. The bank usually recovers it from the deposit itself (or your linked savings account), so the real maturity comes out a little lower than the calculator shows. And since FD years rarely match the April to March tax year, your AIS figures won't match this table exactly. That's normal.

If you want the interest paid out instead, the tax is exactly the same. The difference is only in cash flow, which we cover in cumulative vs non-cumulative FD.

TDS on FD: the ₹50,000 and ₹1 lakh limits

Under section 393 of the Income-tax Act, 2025, a bank, co-operative bank or post office deducts TDS once the interest it pays or credits to you in a tax year crosses:

• ₹50,000 if you are below 60
• ₹1,00,000 if you are a senior citizen (60 or above)

The rate is 10%. Without a PAN, or if your PAN is inoperative because it was never linked to Aadhaar, it jumps to 20%, and Form 121 is off the table too. Linking PAN with Aadhaar fixes both. The limit is counted per bank, across all your FDs and RDs in all its branches, not per FD. Ten FDs of ₹2 lakh in one bank are treated as one pile of interest.

TDS is only an advance payment of tax. What you finally owe depends on your slab. Say you are in the 30% slab and have ₹10 lakh in a one-year FD at 7%:

Splitting FDs across banks so each stays under ₹50,000 is legal and it does stop TDS. It does not stop tax. Every bank still reports your interest, and it all shows up in one place, your AIS.

Form 121: the new 15G and 15H

If your tax for the year will be nil, give the bank Form 121 and it won't deduct TDS. It merged Forms 15G and 15H from 1 April 2026. The Income Tax Department's Form 121 FAQs set out the conditions:

• Below 60: two tests. The tax on your estimated total income for the year must be nil (the rebate counts here), and the income you are declaring, like your FD interest, must not exceed the basic exemption limit. In the new regime that is ₹4 lakh.
• 60 or above: only the first test. If your total tax works out to nil, you can file it. Many banks still won't accept it once your interest crosses ₹12 lakh.
• A valid, operative PAN is a must. No PAN, no Form 121.
• You give a separate form to each bank, every tax year. Some banks also want a fresh one for each new FD.
• Give it at the start of the tax year, before the first interest credit. Many banks take it online through net banking.
• It is only for residents. NRIs can't use it, and NRO FD interest has its own, higher TDS.

A retiree with FDs in two banks. Say a 66-year-old gets ₹3 lakh of pension a year and ₹5 lakh of FD interest from two banks, so ₹8 lakh in total. Under the new regime, the income tax calculator shows his tax as nil. Each bank's interest is above ₹1 lakh, so without Form 121 both would cut 10%, about ₹50,000 in total, which he'd then have to wait to get back. He can and should give Form 121 to both banks in April.

A homemaker with inherited money. Say a 45-year-old inherits ₹70 lakh from her father and puts it all in a one-year FD at 6.5% in one bank. Interest comes to ₹4,66,211 and she has no other income. Her tax is nil in both regimes, thanks to the rebate. But her interest is above ₹4 lakh, so she fails the second test and can't give Form 121. The bank cuts ₹46,621 and she claims it back in her ITR. Spreading the money across banks so each pays under ₹50,000 of interest would avoid the TDS altogether, which is perfectly fine here because she owes no tax anyway.

Form 121 is a legal declaration, and a false one is an offence. Don't sign it just to dodge TDS when your income is taxable.

TDS already cut? Only your ITR gets it back

The bank won't return TDS once it's cut, even if you give Form 121 later. A late form only stops TDS on future interest, so if you forgot in April, give it now. For what's already gone, the only route is your ITR.

This is where a lot of people slip. "The bank already cut tax" sounds like a reason to skip the return. If your tax is nil, it is exactly the reason to file one, even when your income is below the taxable limit. The homemaker above gets her ₹46,621 back only after she files and the return is processed, which usually takes a few weeks to a few months. No return, no refund. Owed money or owing some, the filing steps are the same, and they're at the end of this post.

Advance tax: the bill high-slab depositors forget

In a high slab, TDS leaves a gap, and the tax department doesn't want that gap settled only in July. In the ₹10 lakh example above, ₹15,234 is still due after TDS.

That is where advance tax comes in. If your tax due after TDS is ₹10,000 or more in a year, you're expected to pay it in instalments (15% by 15 June, 45% by 15 September, 75% by 15 December, all of it by 15 March), as per the department's advance tax FAQ. Miss it and interest gets added. Three easy outs:

• Salaried people can declare FD interest to their employer, and many employers then cut extra TDS from salary to cover it.
• Resident senior citizens with no business income don't need to pay advance tax at all. They pay whatever is due before filing.
• If the extra tax is small, under ₹10,000, you just pay it as self-assessment tax at ITR time.

What an FD really pays after tax, slab by slab

Here is ₹5 lakh in a five-year FD at 6.5%, assuming the tax on each year's interest is paid out of that interest. Before tax it grows to ₹6,90,210. After tax:

Between the nil slab and the 30% slab, the same FD gives you about ₹65,700 less over five years. In effective yearly terms, 6.66% drops to 4.55%.

Now put that next to inflation: 4.82% in August 2026, and most people plan with 5–6%. In the 20% or 30% slab, a 6.5% FD after tax barely keeps pace with prices. It still has a job (emergency money, a goal two years away, money you can't risk), but it isn't a growth tool in a high slab. Our SIP vs FD comparison goes into the long-term side.

Once you turn 60: what changes on FD tax

• Higher TDS limit: ₹1 lakh of interest per bank per year instead of ₹50,000.
• Simpler Form 121 test: only nil tax matters, not the ₹4 lakh limit.
• ₹50,000 deduction on interest: section 153 of the new Act (old 80TTB) lets resident seniors deduct up to ₹50,000 of bank, co-op and post office interest, savings and FDs together. Old regime only, though. For the ₹8 lakh retiree above, the old regime still costs ₹52,000 even with this deduction; the new regime costs nothing.
• No advance tax if there's no business income.

Senior rates, payout options and alternatives like SCSS (8.2% for October to December 2026) are covered in our post on FDs for senior citizens.

Cutting the tax without bending any rules

• Use the new regime's ₹12 lakh room. Under it, FD interest is effectively tax-free. Just keep an eye on that line.
• Family members in lower slabs, done properly. Money you gift to your parents for their own FD is taxed in their hands, which may mean nil tax and a Form 121. Money you gift to your spouse is different: under the clubbing rules the interest is still taxed as yours. Same with a minor child's FD.
• PPF for long-term safe money. 7.1% right now, and the interest is fully tax-free, up to ₹1.5 lakh a year. Check it on the PPF calculator.
• Tax-saver FD, only in the old regime. You get the deduction (old 80C, now section 123) on up to ₹1.5 lakh, but the interest is still taxed, and the money is locked for five years.
• Debt or arbitrage funds for bigger amounts. Debt fund gains are taxed at your slab too, but only when you sell, not every year. Arbitrage funds are taxed like equity funds. Both carry some risk an FD doesn't.

For goals a couple of years away, a plain FD or an RD is still fine. Same tax rules.

Before you file: matching AIS, TDS and your ITR

Every bank reports your interest against your PAN, and all of it lands in your Annual Information Statement. Leaving FD interest out of your ITR, or showing only the part where TDS was cut, is one of the commonest reasons salaried people get a mismatch notice. So before you file, go through this in order:

1. Open your AIS and Form 26AS (now called Form 168) on the e-filing portal. Check that every bank's interest and TDS appear against your PAN, including banks where you only have a savings account or an RD.
2. Download each bank's TDS certificate (earlier called Form 16A) from net banking. If a bank's figure in the AIS looks off, this is what you compare it with. Small gaps because FD years don't line up with April to March are normal. A missing bank is not.
3. Add up the whole year's interest and show all of it under income from other sources, cumulative FDs included. Interest that was only added to the deposit still counts. Then claim every rupee of TDS against it.
4. Settle the difference. If tax at your slab is more than the TDS, pay the balance as self-assessment tax before you submit. If your tax is nil, file anyway and the TDS comes back as a refund.
5. Pre-validate the bank account you want the refund in. Refunds only go there.
6. Set up next year while you're logged in. Check your PAN is linked to Aadhaar, see whether next year's interest pushes you past ₹12 lakh, and if your tax will be nil, hand Form 121 to every bank in April.

Twenty minutes with the AIS before you file is a lot less work than answering a notice about it later.

Written by the Gainly team for general information, not as investment or tax advice. Rates and rules change, so check the latest before you decide; tell us if something here is out of date. Contact