Every savings account, fixed deposit and recurring deposit you hold earns interest that the Income-tax Act treats as fully taxable income under the head “Income from Other Sources” — taxed at your normal slab rate, not at any special lower rate. The two things people get wrong are (a) assuming that if the bank did not deduct TDS the interest is tax-free, and (b) not knowing that the deductions that soften this — Sections 80TTA and 80TTB — exist only in the old tax regime.
This guide sets out, for FY 2025-26 (AY 2026-27), exactly how each type of interest is taxed, who can claim 80TTA versus 80TTB, the newly raised bank-TDS thresholds effective 1 April 2025, and how Forms 15G and 15H stop TDS at source. You can plug your own numbers into our Income Tax Calculator as you read.
The one rule that catches everyone: TDS is not the same as tax
TDS (tax deducted at source) is only an advance collection mechanism. The bank deducting — or not deducting — TDS says nothing about whether the interest is taxable. Interest is taxable whether or not TDS was cut. If your FD interest stays below the TDS threshold, the bank simply does not deduct; you are still legally required to report that interest in your return and pay slab-rate tax on it. Conversely, if TDS was deducted, you claim credit for it against your final liability and get the excess back as a refund.
This is where the Annual Information Statement (AIS) matters. The department now pre-populates your interest income from bank reporting. If you omit interest the bank has reported, you invite an automated mismatch. So the safe rule is: report every rupee of interest, then claim the deductions you are entitled to.
How each type of interest is taxed
Savings account interest, FD interest, RD interest and post-office deposit interest are all added to your total income and taxed at slab. The difference lies only in what deduction, if any, you can claim against them.
| Interest source | Taxable? | Deduction (old regime) | Bank TDS applies? |
|---|---|---|---|
| Savings bank / post-office savings account | Yes, at slab | 80TTA up to Rs. 10,000 (non-seniors); covered by 80TTB for seniors | No — Section 194A does not apply to savings interest |
| Bank / co-op / post-office Fixed Deposit | Yes, at slab | None for non-seniors; 80TTB up to Rs. 50,000 for seniors | Yes, once interest crosses the threshold |
| Recurring Deposit (RD) | Yes, at slab | None for non-seniors; 80TTB for seniors | Yes, clubbed with FD interest in the same bank |
| Company / NBFC deposits, bonds | Yes, at slab | None | Yes, above Rs. 10,000 |
Section 80TTA vs 80TTB: know which one is yours
These two deductions are mutually exclusive — you use one or the other, never both, and only if you file under the old tax regime.
Section 80TTA gives individuals below 60 and HUFs a deduction of up to Rs. 10,000 per year, but only on savings account interest (bank, co-operative bank or post office). It does not cover FD or RD interest. If your savings interest is Rs. 7,000, you deduct Rs. 7,000; if it is Rs. 18,000, you deduct the Rs. 10,000 cap.
Section 80TTB is the far more generous senior-citizen version. A resident aged 60 or above gets up to Rs. 50,000 per year, and crucially it covers all deposit interest — savings, FD, RD and post-office deposits together. A senior citizen therefore does not use 80TTA at all; 80TTB replaces it.
| Feature | Section 80TTA | Section 80TTB |
|---|---|---|
| Who | Individuals under 60 & HUFs | Resident senior citizens (60+) |
| Maximum deduction | Rs. 10,000 | Rs. 50,000 |
| Interest covered | Savings account only | Savings + FD + RD + post office |
| Available in new regime? | No | No |
The 1 April 2025 change: higher bank-TDS thresholds
The Finance Act 2025 raised the Section 194A thresholds at which banks start deducting TDS on FD/RD interest, effective 1 April 2025 (i.e. through FY 2025-26):
- General depositors (below 60): threshold raised from Rs. 40,000 to Rs. 50,000 of interest per bank, per financial year.
- Senior citizens: raised from Rs. 50,000 to Rs. 1,00,000 per bank, per year — a genuinely useful relief for retirees living on deposit income.
- Non-bank interest (company deposits, etc.): threshold raised from Rs. 5,000 to Rs. 10,000.
Where TDS does apply, the rate is 10% if the bank has your PAN, and 20% if it does not. Note the threshold is applied bank-wise: spreading deposits across banks can keep each below the limit, but it does not reduce your actual tax — the interest remains fully taxable.
Worked example 1: a salaried person under 60 (old regime)
Ramesh, age 45, FY 2025-26, old regime. His interest income:
| Source | Amount (Rs.) |
|---|---|
| Savings account interest | 14,000 |
| Bank FD interest | 62,000 |
| Total interest income | 76,000 |
| Less: 80TTA (savings only, capped at Rs. 10,000) | (10,000) |
| Net taxable interest | 66,000 |
Because his FD interest of Rs. 62,000 crosses the Rs. 50,000 threshold, the bank deducts TDS of Rs. 6,200 (10%). Ramesh reports the full Rs. 76,000, claims the Rs. 10,000 deduction, and takes credit for the Rs. 6,200 already paid. If he had chosen the new regime instead, the whole Rs. 76,000 would be taxable with no 80TTA at all.
Worked example 2: a senior citizen (old regime)
Mrs. Lakshmi, age 68, FY 2025-26, old regime:
| Source | Amount (Rs.) |
|---|---|
| Savings account interest | 12,000 |
| Bank FD interest | 85,000 |
| Post-office deposit interest | 9,000 |
| Total interest income | 1,06,000 |
| Less: 80TTB (all deposit interest, capped at Rs. 50,000) | (50,000) |
| Net taxable interest | 56,000 |
Her FD interest of Rs. 85,000 is below the raised senior threshold of Rs. 1,00,000, so the bank does not deduct TDS at all. And because 80TTB shelters Rs. 50,000 of her interest, her overall income may well fall below the taxable limit — in which case she can file Form 15H to make sure no TDS is deducted going forward.
Form 15G and 15H: stopping TDS before it happens
If your total income for the year will be below the taxable limit, you can ask the bank not to deduct TDS at all by submitting a self-declaration:
- Form 15G — for individuals below 60 (and HUFs) whose estimated total income is below the basic exemption limit and whose final tax is nil.
- Form 15H — for senior citizens (60+) whose final tax works out to nil.
Submit these at the start of the financial year, and separately to each bank where you hold deposits. A word of caution: do not file 15G/15H if your income is actually taxable. A false declaration attracts penalty, and it does not make the interest tax-free — it only defers collection to your return, often with interest under Sections 234B/234C. If TDS has already been deducted and your income is below the limit, the remedy is simply to file your return and claim the refund.
Key takeaways
- All interest — savings, FD, RD, post office — is taxable at your slab rate; no interest is automatically tax-free.
- TDS is only advance collection. Report interest and claim credit; a below-threshold FD is still taxable.
- 80TTA gives non-seniors up to Rs. 10,000 on savings interest only; 80TTB gives seniors up to Rs. 50,000 on all deposit interest.
- Both 80TTA and 80TTB are available only in the old regime — in the new regime all interest is fully taxable.
- From 1 April 2025 the bank-TDS threshold is Rs. 50,000 for general depositors and Rs. 1,00,000 for senior citizens.
- File Form 15G (under 60) or 15H (senior) only if your income is genuinely below the taxable limit.
Frequently Asked Questions
Is savings account interest tax-free up to Rs. 10,000?
No. It is fully taxable. The Rs. 10,000 is a deduction under Section 80TTA available only in the old regime — so the first Rs. 10,000 of savings interest effectively escapes tax there, but you must still report the whole amount. In the new regime even that Rs. 10,000 is taxed.
My FD interest was below Rs. 50,000 and no TDS was deducted. Do I still declare it?
Yes. The threshold only decides whether the bank deducts TDS; it has nothing to do with taxability. The interest appears in your AIS and must be reported, or you risk a mismatch notice.
Can a senior citizen claim both 80TTA and 80TTB?
No. They are mutually exclusive. A senior citizen uses 80TTB (up to Rs. 50,000, covering all deposits), which is more generous, and does not claim 80TTA.
Does the new tax regime allow any deduction on interest income?
No. Neither 80TTA nor 80TTB is available under the new regime. If most of your income is interest and you are eligible for these deductions, run both regimes through our Income Tax Calculator before deciding.
I submitted Form 15H but later find my income is taxable. What now?
You should pay the tax through your return along with any interest under Sections 234B/234C, and avoid repeating the declaration. A knowingly false 15G/15H can attract penalty, so if in doubt, ask a professional through Ask a CA – Income Tax & TDS.