Interest Income Tax India FY 2025-26 — FD & Savings

Interest income tax is the income tax payable on interest earned from financial instruments such as fixed deposits (FDs), savings accounts, recurring deposits (RDs), bonds, and loans given to others. Under the Income Tax Act, 1961, this income falls under the head 'Income from Other Sources' — unless it arises directly from your business or profession.

The core rule is simple: almost all interest income is taxable in India, and it is added to your total income and taxed at your applicable slab rate. However, the exact tax you owe depends on your age, the source of interest, the regime you choose (old or new), and whether TDS has already been deducted by your bank.

The basic interest income tax formula:

Tax on Interest Income = (Interest Income − Eligible Deduction) × Applicable Slab Rate + 4% Cess

Example: You earn ₹60,000 in FD interest during FY 2025-26. You are below 60 years of age and under the old tax regime.

• Interest Income: ₹60,000
• Less: Section 80TTA deduction (only on savings account interest, not FD): Not applicable here
• Taxable Interest Income: ₹60,000
• Added to total income and taxed at applicable slab rate

The formula itself is straightforward. What becomes complex is accounting for TDS already deducted under Section 194A, the applicable deduction limit under 80TTA or 80TTB, and the difference in treatment between old and new tax regimes — which is exactly what this interest income tax calculator handles automatically.

One of the most searched questions in India is whether FD interest income tax applies — and the answer is clearly yes. Fixed deposit interest is fully taxable in India under both the old and new tax regimes. There is no exemption for FD interest, regardless of the bank, the amount, or the tenure of the deposit.

This applies equally to:

• Bank fixed deposits (public sector and private sector banks)
• Post office time deposits
• Company fixed deposits and NBFC deposits
• Cooperative bank deposits
• Recurring deposits (RDs)

FD Interest Is Taxable on an Accrual Basis

A common misunderstanding is that FD interest is only taxable when received. This is incorrect. Under the Income Tax Act, 1961, interest income must be offered to tax on an accrual basis — meaning it is taxable year by year as it accrues, not just when the FD matures.

If you open a 3-year FD in October 2025, you must declare the proportionate interest accrued up to March 31, 2026 in your FY 2025-26 ITR — even though the bank pays you only at maturity in 2028. This is confirmed by the Income Tax Department of India in its official guidelines.

The interest income tax calculator above accounts for annual accrual automatically when you enter yearly interest figures.

Section 194A of the Income Tax Act, 1961 governs TDS on interest income other than interest on securities. Banks, post offices, cooperative societies, and other institutions deduct TDS when the total interest paid or credited to a taxpayer in a financial year crosses the prescribed threshold.

Budget 2025 raised the TDS thresholds under Section 194A significantly, effective April 1, 2025.

For banks, post offices, and cooperative banks:

• General taxpayers (below 60 years): TDS is deducted only if interest exceeds ₹50,000 per year (raised from ₹40,000)
• Senior citizens (60 years and above): TDS is deducted only if interest exceeds ₹1,00,000 per year (raised from ₹50,000)

For other entities (companies, NBFCs, trusts, etc.):

• TDS threshold is ₹10,000 per year for all taxpayers.

TDS Rate Under Section 194A:

• 10% if valid PAN is provided to the bank. Verify your PAN details using the PAN card validator.
• 20% if PAN is not provided
• No surcharge or cess is added to the TDS rate

Important: The threshold applies per bank, per financial year — not across all banks combined. A general taxpayer with FDs at two banks earning ₹48,000 from each will have no TDS deducted by either bank. However, the total ₹96,000 interest is still fully taxable and must be reported in the ITR.

If your bank has deducted TDS, you can view and verify the amounts in Form 26AS or your Annual Information Statement (AIS) on the official Income Tax portal. TDS credit is adjusted against your final tax liability when you file your ITR. Excess TDS results in a refund.

Section 80TTA of the Income Tax Act, 1961 provides a deduction of up to ₹10,000 per financial year on interest earned from savings bank accounts. This is a targeted benefit to encourage savings among individuals and HUFs.

Key rules under Section 80TTA:

• Available to: Individuals and Hindu Undivided Families (HUFs) below 60 years of age
• Maximum deduction: ₹10,000 per financial year
• Covers: Savings account interest from banks, cooperative societies engaged in banking, and post offices
• Does NOT cover: Fixed deposit interest, recurring deposit interest, or any time deposit interest
• Tax Regime: Available only under the old tax regime — not available under the new tax regime
• For senior citizens: Section 80TTA does not apply. Senior citizens must use Section 80TTB instead.

How it works in practice:

If your savings bank interest is ₹7,500 for FY 2025-26, the entire ₹7,500 is exempt. If your savings interest is ₹14,000, only ₹10,000 is exempt and the remaining ₹4,000 is added to taxable income.

This deduction does not apply to FD interest. If you earn ₹30,000 in FD interest and ₹8,000 in savings interest, you can claim ₹8,000 under 80TTA (not ₹10,000, since actual savings interest is ₹8,000). The FD interest of ₹30,000 remains fully taxable.

Note: Section 80TTA is available even to NRI individuals holding NRO savings accounts. NRE savings account interest is separately exempt under Section 10(4) and does not need 80TTA. If you earn interest from overseas accounts, also see the foreign interest income tax calculator.

Section 80TTB is a special deduction available exclusively to senior citizens aged 60 years and above. It allows a deduction of up to ₹50,000 per financial year on interest income from deposits covering a much wider range of interest sources than Section 80TTA.

Unlike 80TTA, which only covers savings account interest, Section 80TTB covers:

• Savings account interest
• Fixed deposit interest
• Recurring deposit interest
• Post office deposit interest
• Cooperative society deposit interest

This makes Section 80TTB far more valuable for retired individuals who rely primarily on fixed deposit income for monthly expenses. A senior citizen earning ₹80,000 in FD interest and ₹15,000 in savings interest (total ₹95,000) can claim the full ₹50,000 deduction under 80TTB, bringing the taxable interest income to ₹45,000.

Key rules under Section 80TTB:

• Available to: Resident senior citizens aged 60 years and above
• Maximum deduction: ₹50,000 per financial year
• Available only under the old tax regime — not under the new tax regime
• You cannot claim both 80TTA and 80TTB. Senior citizens should always use 80TTB since it covers all deposit interest and offers a much higher limit.
• Super senior citizens (above 80 years) are equally eligible for Section 80TTB.

For a complete comparison, use the old vs new tax regime calculator to see whether the old regime or new regime results in lower overall tax, especially when 80TTB deductions are factored in.

The tax regime you choose for FY 2025-26 has a direct impact on how much income tax you pay on interest income. From FY 2023-24 onwards, the new tax regime is the default. If you do not actively opt for the old regime at the time of filing your ITR, the new regime applies automatically.

New Tax Regime (Default for FY 2025-26):

• No deduction under Section 80TTA or 80TTB
• FD interest, savings interest, RD interest — all fully taxable at slab rates
• Section 87A rebate raised to ₹60,000 (making income up to ₹12,00,000 tax-free for eligible individuals after the ₹75,000 standard deduction)
• Revised slab structure with lower rates across all slabs

New Regime Tax Slabs for FY 2025-26 (AY 2026-27):


Old Tax Regime (Must Opt In Actively):

• Section 80TTA deduction of ₹10,000 on savings account interest (individuals below 60)
• Section 80TTB deduction of ₹50,000 on all deposit interest (senior citizens)
• Higher slab rates compared to the new regime, but multiple deductions available
• Basic exemption limit: ₹2,50,000 (general), ₹3,00,000 (senior citizens), ₹5,00,000 (super senior citizens)

Which regime is better if you earn interest income?

For senior citizens with significant FD income, the old regime is often more beneficial because Section 80TTB offers a ₹50,000 deduction — a substantial reduction in taxable interest income. For younger salaried individuals with moderate interest income and no large deductions, the new regime's lower slab rates may result in lower overall tax.

Use the old vs new tax regime calculator to compare your actual tax under both regimes before making a decision.

The Income Tax Act provides meaningful relief specifically for senior citizens on interest income tax, acknowledging that FD interest is often the primary income source post-retirement.

1. Higher TDS Threshold Under Section 194A
Senior citizens (60 years and above) benefit from a TDS threshold of ₹1,00,000 per bank per year (FY 2025-26), revised upward from ₹50,000 in Budget 2025. This means less TDS friction for those whose FD interest stays within this limit per institution.

2. Section 80TTB Deduction of ₹50,000
Under the old tax regime, senior citizens can reduce their taxable interest income by up to ₹50,000 by claiming the Section 80TTB deduction — applicable to savings account interest, FD interest, RD interest, and post office deposit interest all together.

3. Higher Basic Exemption Limit (Old Regime)
Under the old tax regime:
— Senior citizens (60–79 years): ₹3,00,000 basic exemption
— Super senior citizens (80+): ₹5,00,000 basic exemption
This higher exemption, combined with the 80TTB deduction, means many retired individuals pay significantly lower or even zero tax on their interest income.

4. Exemption from Advance Tax (Section 207)
Senior citizens with no business income are fully exempt from advance tax obligations. They can pay their full tax liability when filing the ITR (by July 31) without any Section 234B or 234C interest being charged.

5. Section 194P — No ITR Filing for Eligible Senior Citizens
Senior citizens above 75 years who receive only pension and interest income from a specified bank may be exempt from filing an ITR entirely. The bank computes and deducts the applicable tax, removing the return-filing burden. This is confirmed by the Income Tax Department of India under Section 194P, introduced in Finance Act 2021.

For a complete picture of how old regime deductions impact your overall tax, use the old vs new tax regime calculator.