Bank Interest & Income Tax 2025-26: FD, Savings, TDS Rules & How to Declare in ITR

The most consistent source of AIS mismatch notices I see in my practice is not capital gains, not property transactions, not foreign income — it is bank interest. Specifically, FD interest earned across multiple banks where no single bank crossed the TDS threshold, so no tax was deducted anywhere, and the taxpayer assumed that no TDS meant no tax. By July, when they file their ITR, the combined interest from three banks — ₹35,000 each — adds up to ₹1,05,000 that was never declared. AIS has all three banks’ figures. The notice follows shortly after.

Bank interest is the simplest income type to get right — and one of the most commonly mishandled. This guide covers everything: how tax applies to different types of bank interest, when TDS is deducted and at what rates, how to use Form 15G and 15H correctly, how to declare it in your ITR, and what senior citizens should specifically claim to minimise their liability.

💡 The Single Most Important Fact: Every bank reports interest paid to the Income Tax Department through AIS (Annual Information Statement). From the day you file your ITR to the day you receive your 143(1) intimation, the department’s system is comparing your declared interest against what every bank has already reported. Interest you do not declare is not hidden — it is detectable within weeks of filing.

How Tax Applies to Different Bank Interest Types

All bank interest — savings account, fixed deposit, recurring deposit — is taxable under “Income from Other Sources.” It is added to your total income and taxed at your applicable slab rate. There is no separate flat tax rate on bank interest.

Interest Type	Taxable?	ITR Schedule	Deduction Available?
Savings account interest	Yes — at slab rate	Schedule OS	80TTA (Old Regime): up to ₹10,000; 80TTB (Senior, Old Regime): up to ₹50,000
Fixed Deposit (FD) interest	Yes — at slab rate	Schedule OS	80TTB (Senior, Old Regime only): ₹50,000 limit includes FD; No 80TTA for FD
Recurring Deposit (RD) interest	Yes — at slab rate	Schedule OS	80TTB (Senior, Old Regime only); No 80TTA for RD
Post Office Savings Account interest	Partly exempt: ₹3,500 (single) / ₹7,000 (joint) — Section 10(15)(i); remainder taxable	Schedule OS + Schedule EI for exempt portion	80TTB if senior citizen
PPF interest	No — fully exempt	Schedule EI only	Not applicable — exempt, not a deduction
NRE account interest (NRI)	No — exempt while NRI status	Schedule EI only	Not applicable
NRO account interest (NRI)	Yes — at 30% + surcharge + cess	Schedule OS	DTAA credit may apply

⚠️ Critical Distinction — 80TTA vs 80TTB:
Section 80TTA — for non-senior citizens in Old Regime. Applies ONLY to savings account interest. Not FD, not RD, not post office deposits. Maximum ₹10,000 deduction per year.
Section 80TTB — for senior citizens (60+) in Old Regime. Applies to ALL interest income — savings, FD, RD, post office deposits, SCSS. Maximum ₹50,000 deduction per year.
Neither deduction is available in the New Tax Regime. If you are in the New Regime, your entire bank interest — savings and FD — is added to income and taxed at your slab rate with no relief.

TDS on Bank Interest — Section 194A Rules

TDS on bank interest is deducted under Section 194A. The key rules:

Taxpayer Category	TDS Rate	Annual Threshold per Bank
Non-senior citizen (below 60)	10%	₹40,000 interest per bank per year
Senior citizen (60 and above)	10%	₹50,000 interest per bank per year
Any category — no PAN submitted	20%	Same respective threshold

The Multi-Bank Trap

The TDS threshold is per bank, per year — not per person across all banks. If you have FDs in three banks earning ₹35,000 each, no single bank has crossed ₹40,000 — so no bank deducts TDS. Total interest: ₹1,05,000. TDS deducted: zero. Tax due in ITR: ₹1,05,000 × your slab rate.

This is the most common scenario that generates AIS mismatch notices. The AIS aggregates all three banks’ SFT reports. Your ITR shows zero Other Sources income. The 143(1) intimation arrives with a demand.

What TDS Does and Does Not Mean

TDS is a prepayment of tax — not a final tax settlement. If TDS was deducted at 10% but your slab rate is 30%, you owe the remaining 20% as Self-Assessment Tax when filing. If TDS was deducted at 10% but your income is below the basic exemption — the entire TDS is refundable through your ITR. TDS deducted never means your tax obligation is complete.

FD Interest Accrual — Tax Before Maturity: FD interest is taxable on an accrual basis — meaning it is taxable every year it accrues, even if the FD has not matured and you have not received the cash. A 3-year FD from April 2024 accrues interest in FY 2024-25, FY 2025-26, and FY 2026-27 — you must declare the accrued interest in the ITR for each year, not just when it matures in April 2027. Banks typically provide annual interest certificates confirming the accrued amount. Request these every April.

Form 15G and Form 15H — Preventing Unnecessary TDS

If your total income is likely to be below the taxable threshold for the year, you can submit Form 15G (for non-senior citizens) or Form 15H (for senior citizens) to prevent TDS deduction on your bank interest. This is significantly more efficient than having TDS deducted and then filing for a refund.

Form	For	Eligibility Condition	Key Difference
Form 15G	Below 60 years	Total income must not exceed basic exemption (₹2.5L); estimated tax for the year = zero	Both conditions must be met — total income below threshold AND tax payable zero
Form 15H	60 years and above	Estimated tax liability for the year = zero (after 80TTB and other deductions)	No upper income limit — only condition is that tax liability is zero

How and When to Submit

Submit at the start of every financial year — April or May
Submit to each bank separately — one bank’s form does not cover another
Submit for each new FD you open during the year
Form is valid only for the financial year it is submitted — resubmit every year
Banks now accept Form 15G/15H online through their net banking portal — no branch visit required in most cases

⚠️ Submitting 15G When Not Eligible — A Penalty Risk: If you submit Form 15G but your total income is actually taxable, this is a false declaration — punishable under Section 277 with potential prosecution. Submit 15G only if you are genuinely confident your total income will not be taxable for the year. When in doubt — let the TDS be deducted and claim a refund. The refund is tedious but not a legal risk.

💡 Form 15H for Senior Citizens — More Flexible: Unlike Form 15G, Form 15H has no income ceiling — you can have high income and still submit 15H, as long as your estimated tax liability after 80TTB and other deductions is zero. A senior citizen with ₹7 lakh in FD interest and ₹5 lakh pension — after 80TTB (₹50,000) and standard deduction (₹75,000) — may still have zero tax at the end. Verify your estimate before April and submit 15H if liability is zero.

Step-by-Step: Declaring Bank Interest in Your ITR

1Download AIS and Collect All Interest Figures
incometax.gov.in → AIS → download Taxpayer Information Summary. The TIS shows aggregated interest from all banks under relevant categories. Also collect: FD annual interest certificates from each bank (request in April-May), savings account passbooks or net banking statements showing interest credited, post office interest certificates if applicable.
2Segregate Interest by Type
Separate your interest into: savings account interest (eligible for 80TTA if Old Regime), and FD/RD/other interest (not eligible for 80TTA — only 80TTB for senior citizens). This segregation matters because 80TTA applies only to savings interest — applying it to FD interest is incorrect and will be flagged.
3Open the ITR — Go to Schedule OS
In ITR-1 or ITR-2, find Schedule “Income from Other Sources.” You will see separate lines for: interest from savings bank accounts, interest from deposits (FD/RD/TD), interest from income tax refunds, and any other interest. Fill savings interest in the savings line and FD/RD interest in the deposits line — do not combine them into one figure.
4Claim Applicable Deduction
Old Regime, below 60: In Schedule VI-A → Section 80TTA → enter savings interest, maximum ₹10,000.
Old Regime, 60 and above: In Schedule VI-A → Section 80TTB → enter total interest (savings + FD + RD), maximum ₹50,000.
New Regime: No deduction available. Skip this step.
5Declare Post Office Savings Interest Correctly
Post Office savings account interest: declare total in Schedule OS. Then, in Schedule EI (Exempt Income), enter the exempt portion — ₹3,500 for a single account, ₹7,000 for a joint account. The net taxable amount is total minus the exempt portion. This prevents AIS mismatch while correctly claiming the partial exemption.
6Verify TDS Credit in Form 26AS
Before submitting, check that TDS deducted by each bank appears in your Form 26AS. The pre-filled ITR will pull TDS from Form 26AS automatically. If TDS appears in Form 16A (bank’s TDS certificate) but not in Form 26AS — contact the bank, as they may have filed their TDS return incorrectly. Do not claim TDS credit that is not in Form 26AS — it will cause a mismatch and a demand.

Senior Citizens — Maximising 80TTB

Section 80TTB is one of the most valuable provisions for retired individuals — and one of the most frequently missed. It allows senior citizens (60+) to deduct up to ₹50,000 of total interest income (from all bank deposits, savings accounts, post office deposits, and SCSS) in the Old Regime. This is not a ₹10,000 deduction like 80TTA — it is ₹50,000 across all interest sources combined.

Interest Source	80TTB Eligible?
Bank savings account interest	✅ Yes
Bank FD interest	✅ Yes
Bank RD interest	✅ Yes
Post Office savings account interest	✅ Yes
Post Office FD/RD/MIS interest	✅ Yes
Senior Citizen Savings Scheme (SCSS) interest	✅ Yes
PPF interest	Not applicable — PPF is exempt, not a deduction
NRE account interest	Not applicable — exempt under Section 10(4)

80TTB and Form 15H — The Optimal Combination: A senior citizen with ₹6 lakh in FD interest in Old Regime: 80TTB deduction ₹50,000 → taxable interest ₹5.5 lakh. After standard deduction ₹75,000 and basic exemption ₹3 lakh (60–80 age), remaining taxable = ₹1.75 lakh. Tax at 5%: ₹8,750. If total income is low enough that tax after 80TTB and other deductions comes to zero — submit Form 15H in April so TDS is not deducted at all.

Real Examples with Full Calculations

Example 1 — Salaried Professional, Three Banks, No TDS Deducted

Rajesh, 38, salary ₹8 lakh. FDs in three banks — Bank A: ₹38,000 interest, Bank B: ₹35,000, Bank C: ₹22,000. No bank crossed the ₹40,000 TDS threshold. Total FD interest: ₹95,000. No TDS deducted by anyone.

Item	Old Regime	New Regime
Salary (after SD ₹75K)	₹7,25,000	₹7,25,000
FD interest	+₹95,000	+₹95,000
80TTA (FD interest — not eligible)	Nil — FD not covered	N/A
80C (assume ₹1.5L)	−₹1,50,000	N/A
Taxable Income	₹6,70,000	₹8,20,000
Tax + 4% cess	₹46,020	₹53,040
TDS already paid	Nil	Nil
Self-Assessment Tax due	₹46,020	₹53,040

If Rajesh files ITR without declaring ₹95,000 in FD interest — AIS will show all three banks’ interest. The 143(1) demand will arrive. The Self-Assessment Tax he should have paid plus interest under 234B/234C will significantly exceed the original liability. Declare proactively.

Example 2 — Senior Citizen (68), Pension + FD Interest

Sunita, 68, pension ₹4 lakh + FD interest ₹72,000 (from two banks, each below ₹50,000 threshold — no TDS deducted).

Item	Old Regime	New Regime
Pension	₹4,00,000	₹4,00,000
Standard Deduction	−₹75,000	−₹75,000
FD Interest	+₹72,000	+₹72,000
Section 80TTB	−₹50,000	N/A — not available
Taxable Income	₹3,47,000	₹3,97,000
Tax (Old: senior ₹3L exempt, 5% on ₹47K)	₹2,350	₹4,850
+ 4% cess	₹2,444	₹5,044
Winner	✅ Old Regime — ₹2,600 less. 80TTB saves ₹2,500 in tax.

If Sunita’s total income next year is lower and her tax after 80TTB comes to zero — she should submit Form 15H in April so TDS is not deducted at all, saving the refund application hassle.

Example 3 — Low Income, Excess TDS, Full Refund Due

Mohan, 28, total income ₹3.5 lakh (salary only). He has an FD — interest ₹58,000. Bank deducts TDS at 10% = ₹5,800 (crosses ₹40,000 threshold).

Item	New Regime (Default)
Salary	₹3,50,000
Standard Deduction	−₹75,000
FD Interest	+₹58,000
Taxable Income	₹3,33,000
Tax at New Regime slabs	₹1,650 (5% on ₹33K above ₹3L)
TDS already deducted	₹5,800
Refund due	₹5,800 − ₹1,650 = ₹4,150

Mohan’s correct approach: submit Form 15G next April (income will again be low) so TDS is not deducted. This year, file ITR to claim the ₹4,150 refund. The refund is entirely legitimate — TDS was over-deducted relative to actual liability.
🔗 ITR Filed But Refund Not Received — Complete Guide

Post Office Interest — The Often-Forgotten Source

Post Office schemes — savings account, FD, RD, MIS (Monthly Income Scheme), SCSS (Senior Citizen Savings Scheme), NSC (National Savings Certificate) — all generate taxable interest. The tax treatment mirrors bank interest, with one specific partial exemption.

Post Office Scheme	Tax Treatment	TDS?
Savings Account Interest	Taxable. Partial exemption: ₹3,500 (single) / ₹7,000 (joint) under Section 10(15)(i)	No TDS
FD / TD Interest	Fully taxable — 80TTB eligible for senior citizens	TDS if ≥ ₹40K (non-senior) / ₹50K (senior)
RD Interest	Fully taxable — 80TTB eligible for senior citizens	TDS if ≥ ₹40K
MIS Interest	Fully taxable — 80TTB eligible for senior citizens	TDS if ≥ ₹40K
SCSS Interest	Fully taxable — 80TTB eligible for senior citizens	TDS if ≥ ₹50K (senior scheme)
NSC Interest	Accrued each year — taxable annually, not just at maturity	No TDS (accrual basis)

NSC — The Accrual Trap: NSC interest accrues annually and is taxable every year — even though you receive no cash until maturity. You must include the annual accrued interest in Schedule OS each year. The certificate’s face value increases each year by the accrued interest — your bank or post office can provide the annual accrual amounts. This is also why NSC interest qualifies as a deemed reinvestment under 80C — you can claim the annual accrued interest as an 80C deduction in the Old Regime.

Common Mistakes

Not declaring interest because “TDS was not deducted”:
TDS deduction is the bank’s threshold-based obligation. Your declaration obligation exists regardless of whether TDS was deducted. If 3 banks each earned ₹35,000 and none deducted TDS — all ₹1,05,000 must still be declared. AIS aggregates all three. The notice arrives. Pay the tax proactively rather than waiting for the demand.

Applying 80TTA to FD interest:
Section 80TTA applies only to savings bank account interest — not FD, not RD, not post office FD, not NSC. FD interest gets no 80TTA benefit for non-senior citizens. Senior citizens get 80TTB — which covers FD interest — but only in the Old Regime. Claiming 80TTA on FD interest is incorrect and will be adjusted in the 143(1) intimation.

Senior citizens staying in New Regime and losing 80TTB:
New Regime has no 80TTB. A retired person with ₹72,000 in FD interest and ₹4 lakh in pension — in New Regime, pays tax on the full ₹72,000 FD interest. In Old Regime, 80TTB shelters ₹50,000 of it. The tax difference (at 5% slab on ₹50,000) is ₹2,600 — multiplied over 10 years of retirement, that is ₹26,000 in unnecessary tax. Old Regime almost always wins for senior citizens with significant deposit interest.

Declaring combined total instead of savings/FD separately in ITR:
Schedule OS has separate lines for savings account interest and deposit (FD/RD) interest. Entering everything as one lump figure prevents the ITR system from correctly applying 80TTA only to the savings portion. Always segregate: savings interest on the savings line, FD/RD interest on the deposit line.

Forgetting accrued FD and NSC interest in early maturity years:
FD and NSC interest is taxable when it accrues — not when cash is received. A 3-year FD opened in December 2024 accrues interest in FY 2024-25 (partial year), FY 2025-26, and FY 2026-27. You must declare each year’s accrual in the ITR for that year, even if you do not receive the cash until the FD matures in December 2027. Annual interest certificates from the bank confirm the accrued amounts.

Frequently Asked Questions

Q1. My FD earns ₹55,000 interest annually. The bank deducted TDS at 10% — is my tax done?
No. TDS at 10% is a prepayment — not your final liability. If your slab rate is 20% or 30%, you owe the remaining 10% or 20% as Self-Assessment Tax when filing. If your slab rate is below 10% (or you have no taxable income after deductions), the excess TDS is refundable. Always declare the interest and compute actual liability — TDS is just a credit against it.

Q2. I have savings account interest of ₹8,000 and FD interest of ₹35,000. How much 80TTA can I claim?
Only ₹8,000 — the actual savings account interest. Section 80TTA applies only to savings account interest with a maximum of ₹10,000. Your FD interest of ₹35,000 is not eligible for 80TTA. The correct 80TTA deduction is the lower of actual savings interest (₹8,000) or ₹10,000 — which is ₹8,000 in this case.

Q3. I submitted Form 15G but my bank still deducted TDS — what now?
This can happen if the FD was opened before 15G was submitted for the current year, or if the bank’s system had an error. Contact the bank and request a TDS correction. File your ITR declaring the interest and claiming TDS credit from Form 26AS. The refund of excess TDS will be credited once your ITR is processed — typically within 30–60 days. Ensure the bank files a corrected TDS return to reflect that 15G was submitted before TDS was deducted.

Q4. Is cooperative bank interest taxed differently from nationalised bank interest?
The income tax treatment is identical — Section 194A TDS rules and the 80TTA/80TTB deductions apply the same way to cooperative bank and NBFC interest as they do to nationalised or private bank interest. The AIS SFT reporting applies to cooperative banks above certain thresholds as well. Declare all interest from all institutions — there is no preferential treatment for cooperative bank interest.

Q5. I am an NRI. My Indian FD interest is taxed at 30% TDS. Can I reduce this via DTAA?
Yes — under the India-Australia DTAA (for example), interest income is typically taxable at a reduced rate under the treaty rather than the standard 30%. You must submit a Tax Residency Certificate (TRC) and Form 10F to your Indian bank to claim the lower DTAA rate. Without these documents, the bank is required to deduct TDS at the standard 30% rate. Consult a CA with international tax experience to determine the applicable DTAA rate for your country of residence and to prepare the required documentation.

Conclusion

Bank interest is the most predictable income category in Indian tax — the rules are clear, the AIS reporting is comprehensive, and the deductions available are well-defined. What makes it complicated is the accumulation of small oversights: not collecting all banks’ interest in April, not segregating savings from FD for the 80TTA claim, forgetting accrued interest on multi-year FDs, and the pervasive assumption that no TDS means no tax obligation.

The habit that eliminates most of these problems: download your AIS every April — before you file — and reconcile every interest entry against your own bank records. Submit Form 15G or 15H by April if eligible. Declare savings interest and FD interest on separate lines in Schedule OS. Claim 80TTA or 80TTB as applicable in the Old Regime. These five steps, done consistently each year, produce a clean return and no AIS mismatch notices.

Related Guides

Written & Reviewed by: Vipin Goel

B.Com | 20+ Years Experience in Income Tax, GST & International Taxation

At TaxPremia.com, I write practical guides for Indian taxpayers and NRIs. Bank interest is the most common source of AIS mismatch notices I handle — and every case traces back to one of the mistakes covered in this guide. Getting the basics right here saves significant time and money.

For more practical tax updates visit: TaxPremia.com

Disclaimer: This article is for educational and informational purposes only. Tax rules, TDS thresholds, and deduction limits are subject to change with each Finance Act. Please consult a qualified Chartered Accountant before making decisions about your interest income declaration, Form 15G/15H submission, or ITR filing.