Every time your bank pays interest on a fixed deposit above a certain limit, it deducts TDS before crediting the amount to your account. Here is how Section 194A works, the current thresholds, and how to make sure the bank doesn't deduct tax it shouldn't.
Section 194A of the Income Tax Act requires banks, post offices, co-operative societies and companies to deduct TDS on interest paid on fixed deposits (FDs), recurring deposits (RDs) and similar deposits - other than interest on securities, which is covered separately under Section 193.
The deductor (bank/NBFC) withholds tax at the time interest is credited or paid, whichever is earlier, and deposits it with the government against your PAN. You can see this TDS reflected in your Form 26AS and Annual Information Statement (AIS).
TDS under Section 194A applies only if the total interest income from a deductor in a financial year exceeds the prescribed limit:
| Depositor | Threshold (Banks/Post Office) | Threshold (Other deductors, e.g. NBFCs, companies) |
|---|---|---|
| Regular individuals (below 60 years) | ₹40,000 | ₹5,000 |
| Senior citizens (60 years and above) | ₹50,000 | ₹5,000 |
This threshold is applied per payer, not in aggregate across all your banks. So if you hold FDs with three different banks and the interest from each bank is below ₹40,000 (or ₹50,000 for senior citizens), no TDS will be deducted by any of them - even though your total interest income across banks may exceed the limit.
The standard TDS rate is 10% if you have furnished your PAN to the bank. If PAN is not provided or is invalid, the deductor must deduct TDS at 20% under Section 206AA.
For senior citizens with FD interest as their main income source, this 10% TDS can often mean excess tax is deducted compared to their actual tax liability - especially if their total income is below the basic exemption limit or eligible for rebate under Section 87A.
If your total income for the year is below the basic exemption limit (so no tax is payable), you can submit a declaration to the bank to prevent TDS deduction altogether:
These forms must be submitted at the start of the financial year, or before the first interest credit, to each bank/branch where you hold deposits.
If your interest income combined with deductions under Sections 80C, 80TTA/80TTB etc. brings your taxable income below the exemption threshold under the old regime, you may be eligible for Form 15H even though TDS would otherwise apply.
While this does not reduce your overall tax liability, splitting large FDs across multiple banks (each below the threshold) avoids upfront TDS - improving your cash flow, since you won't need to wait for a refund.
If TDS has already been deducted but your actual tax liability is lower (or nil), you can claim the excess as a refund by filing your Income Tax Return. The TDS amount will be reflected as a pre-paid tax credit, and any excess is refunded directly to your bank account after processing.
For cumulative FDs (where interest is paid only on maturity), TDS is still deducted annually on the interest accrued during that year - not just at maturity. This often surprises depositors who expect TDS only when the deposit matures. Banks calculate notional annual interest and deduct TDS accordingly each year, even though no cash is actually paid to you until maturity.