Income Tax on Interest Income

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Divya Singhvi

Fixed Deposit
Income from Other Sources
Income Interest
Income Tax
Last updated on November 24th, 2023

Interest-bearing investments such as savings accounts, fixed deposits, and recurring deposits are go-to options for risk-averse investors. Just like any other income, interest income also attracts income tax. Interest income from these investments is taxable as income from other sources. Let’s take a look at some of the most popular interest-bearing investments and how they are taxed in India-

Taxability on Saving Bank Interest

Each quarter, the bank adds interest to your savings account, which is treated as taxable income under the head “IFOS.” Further, It is essential to disclose this accumulated interest in your income tax return. The various other points regarding taxability on savings bank interest are as follows:

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Tax on Fixed Deposit Interest

Fixed deposits have been a popular investment option for many investors, it allows you to exploit the complete potential of Section 80C to deduct ₹1.5 lakh from your taxable income. However, interest received on FD is taxable and chargeable under the head ‘Income from Other Sources‘. The various other points regarding taxability on fixed deposit interest are as follows:

How tax on FD interest is calculated?

Many taxpayers received email from the Income Tax Department about discrepancies in interest income between AIS and filed tax returns. To prevent such notices, include your interest income in total income and calculate tax liability accordingly. You can follow the below-mentioned steps to calculate tax liability on interest on FD to your ITR:

If you choose to receive the interest from your fixed deposit at maturity, the total interest income accrued could potentially elevate you into a higher tax bracket, resulting in increased tax payments.

Let’s take an example:

Anish has 2 FDs with a bank of INR 2,00,000 each for a period of 5 years at 8% interest per annum. In the first year, Anish’s interest income is INR 16,000 from each of the FDs, total interest accrued is INR 32,000 in the first year. The bank does not deduct TDS for annual FD interest below INR 40,000.

Another Example: Arjun has a FD of INR 10 lakh with the Bank at an interest rate of 7% p.a. He receives an annual interest of INR 70,000. The bank will deduct TDS at the rate of 10% on the whole amount of INR 70,000.

Interest Income of Senior Citizens

Senior citizens receiving interest income from FDs, savings accounts, and recurring deposits can claim a deduction of up to ₹50,000 annually under Section 80TTB. If the senior citizen’s interest income from all FDs with a bank is less than ₹50,000 in a year, the bank is not required to deduct any TDS.


How will I receive the interest amount?

If you have deposited your money under the traditional scheme, the interest is credited to the given Savings Account on a monthly or quarterly basis.
If you have opted for the reinvestment scheme, a compounded interest is added to the principal amount every quarter and this is reinvested.
You can choose to receive the interest amount on a monthly, quarterly, or annual basis.

Is there any tax deduction for investment in FD?

If an individual opts for the old/existing tax regime, then under Section 80C of the Income-tax Act, you can claim a deduction for investments up to INR 1.5 lakh in a financial year by investing in tax-saving fixed deposits (FDs)

Can I seek deductions for the interest income earned from multiple savings bank accounts?

Yes, but the collective limit is INR 10,000

Are tax saving FD returns tax free?

Individuals can claim income tax deductions of up to INR 1.5 lakh under Section 80C of the Income-tax Act, 1961. However, interest earned on this tax saving FD is taxable except when specifically exempted.