TDS on Bank and Fixed Deposit Interest in Tax Year 2026-27: Thresholds, Rates and Tax Credit

How TDS on bank interest works in Tax Year 2026-27

Banks may deduct tax at source (TDS) on fixed-deposit and other covered time-deposit interest when the applicable threshold is exceeded. For interest credited or paid on or after 1 April 2026, the relevant provisions are in Section 393 of the Income-tax Act, 2025.

The TDS threshold does not make interest below that amount tax-free. It determines whether the payer must deduct tax. Interest may still need to be reported in your tax return and may be taxable depending on your total income and the applicable rules.

Tax Year 2026-27 runs from 1 April 2026 to 31 March 2027. A credit or payment made on or before 31 March 2026 remains governed by the Income-tax Act, 1961, even if the bank deposits the TDS later.

TDS rates and thresholds for interest

Section 393(1), Table Serial No. 5, sets out different rules for interest on securities, interest paid by banks and certain other institutions, and interest paid by other specified persons.

The Income Tax Department’s TDS rate table lists 10% for interest other than interest on securities. A valid lower or nil deduction certificate, an eligible declaration, or the rules that apply when the recipient does not furnish a PAN can affect the amount deducted.

Bank and post office deposits

For the first row, the threshold applies to the total relevant interest credited or paid during the tax year. It is not a separate allowance for each fixed deposit.

A senior citizen for this threshold is generally an individual aged 60 or older at some point during the tax year. The threshold for covered interest paid by the listed institutions is ₹1 lakh for a senior citizen and ₹50,000 for a person who is not a senior citizen.

For example, suppose a bank expects to credit ₹54,000 of covered deposit interest to a non-senior depositor during Tax Year 2026-27. The ₹50,000 threshold is exceeded. TDS is generally calculated at 10% on the full amount covered by the rule, not only on the ₹4,000 above the threshold.

If your interest is close to the threshold, check the expected interest across your deposits with that payer. A bank may calculate interest for the year before a deposit matures and deduct TDS when interest is credited, even if it does not pay the deposit proceeds to you at that time.

The rules also address cases where a bank or other listed institution has not adopted core banking solutions. In those cases, the threshold for certain time-deposit interest may be calculated with reference to interest credited or paid by a branch. Check the applicable rule if this affects your accounts.

Interest from other specified payers

Interest from a company or another specified person may fall under Table Serial No. 5(iii), with a ₹10,000 threshold and a 10% rate. This can be relevant to some corporate deposits, finance company deposits, or other interest payments. The payer’s status and the type of instrument matter.

Interest on securities is listed separately in Serial No. 5(i). A bond or debenture should not automatically be treated like a regular bank fixed deposit. Check the type of security, who pays the interest, and the applicable entry before using the bank-deposit threshold.

These thresholds apply to the resident-payee provisions described here. Payments to a non-resident may be subject to separate withholding rules, so do not apply the resident rates automatically.

What types of interest are covered?

The bank threshold applies to interest from covered time deposits, including fixed deposits. The statutory table also covers specified deposits with co-operative banks and certain deposits under Central Government-notified post office schemes.

Savings-account interest is generally not subject to TDS under the bank’s time-deposit rule. The relevant provisions also exclude interest on certain deposits that are not time deposits. However, savings-account interest may still be taxable and should not be left out of your return simply because the bank did not deduct TDS.

Recurring deposits are generally treated as time deposits for this purpose. Check the bank’s TDS statement and deposit records instead of assuming that recurring-deposit interest is outside the rule.

Some interest paid by co-operative societies has specific exclusions or conditions. The outcome may depend on whether the co-operative carries on banking business, whether the recipient is a member, the type of deposit, and the payer’s turnover. Do not apply the regular bank threshold to every interest payment from a co-operative society.

When does the bank deduct TDS?

For payments covered by Section 393(1), TDS is generally deducted at the earlier of:

• crediting the interest to the recipient’s account; or
• paying the interest in cash, by cheque or draft, by transfer, or through another mode.

A bank may therefore deduct TDS when it credits interest to the deposit account, even if it does not pay the deposit proceeds to you at that time. Looking only at the deposit maturity date may not show when the TDS obligation arose.

If the bank credits interest periodically, check each credit and the total for the tax year. If the threshold is crossed later in the year, the bank may adjust the deduction to account for earlier interest or a previous shortfall.

How to reduce or avoid excess TDS

TDS is an advance collection of tax. If the amount deducted is more than your final tax liability, you may be able to claim the eligible credit or a refund through your return. To prevent unnecessary deduction:

• Check the bank’s annual interest estimate. Add interest from all relevant deposits with that payer and check the threshold for your age category.
• Keep your PAN details current. A missing or invalid PAN can result in deduction at a higher rate under the applicable provisions. Check the PAN recorded in each deposit account.
• Submit a declaration only if eligible. Form 121 is the current declaration for eligible recipients who meet the conditions for nil TDS under the Income-tax Rules, 2026. It replaces the earlier Forms 15G and 15H for the new tax-year framework. It is not a blanket exemption: eligibility depends on your estimated total income and the statutory conditions. See TaxClear’s Form 121 eligibility and submission guide.
• Consider a lower or nil deduction certificate where appropriate. If the facts support a lower deduction, check whether you can apply to the tax authority for a certificate. Give it to the payer before the relevant credit or payment.
• Review the bank’s TDS record. Check the interest amount, PAN, tax deducted, and tax-year reporting. Ask the bank to correct errors promptly so the credit can be reported accurately.

A declaration or certificate can prevent or reduce TDS only if you meet the conditions and the payer receives the required information in time. It does not make otherwise taxable interest exempt.

How to report interest and claim TDS credit

Interest from fixed deposits and savings accounts is generally reported as income from other sources if it is not part of business income. The reporting may differ if you earn interest as part of a lending or other business activity. Consider the nature of the activity and follow your accounting method consistently.

Report gross interest, not the amount remaining after TDS. For example, if the bank credits ₹60,000 of interest and deducts ₹6,000, the interest to consider is generally ₹60,000. The ₹6,000 is a tax credit, not a reduction of your interest income.

Before filing:

• match interest certificates and bank statements with the bank’s tax-credit information;
• check the tax year and PAN against which TDS was reported;
• reconcile the information with Form 168, the Annual Information Statement for Tax Year 2026-27;
• include interest even if no TDS was deducted; and
• claim only TDS credit that is reflected in your tax records or properly supported by the payer’s records.

The Income Tax Department prescribes Form 140 as the quarterly TDS statement for resident non-salary payments, including interest where applicable. Its standard due dates are 31 July, 31 October, 31 January, and 31 May after the tax year. TDS deducted by regular deductors is generally deposited by the 7th of the following month, with a separate deadline for non-government deductors for March deductions.

A separate rule applies to certain resident individuals aged 75 or older who receive pension and interest from the same specified bank, subject to statutory conditions. Under Section 393(1), Table Serial No. 8(iii), the specified bank may calculate TDS on total income. This is different from the ordinary deposit-interest thresholds discussed above. The Income Tax Department’s Form 138 guidance addresses TDS reporting by specified banks in these cases. For general TDS compliance, see TaxClear’s TDS and TCS filing guide.

The bank is responsible for deducting and reporting tax, but you should still check that the credit appears correctly. TDS does not settle your final tax liability. If tax calculated on your total income is more than TDS and other tax payments, you may need to pay the balance. If TDS exceeds your final liability, the eligible excess may be refundable after you file your return and it is processed.

Examples

Non-senior depositor with ₹48,000 in bank interest

A non-senior individual earns ₹48,000 of covered bank-deposit interest during Tax Year 2026-27. This is below the ₹50,000 threshold, so the bank generally does not deduct TDS under this entry. The individual must still determine whether the interest is taxable and report it where required.

Senior citizen with ₹1,10,000 in covered interest

A senior citizen earns ₹1,10,000 of covered interest from a bank. The ₹1 lakh threshold is exceeded. TDS is generally calculated at 10% on the full covered amount, subject to applicable rules, declarations, and certificates. The deducted amount is available as tax credit, but the interest must still be considered in the return.

Interest from a company deposit

A person receives ₹14,000 of interest from a company deposit, and the payer is a specified person covered by the relevant entry. The ₹10,000 threshold may be exceeded, so the payer may need to deduct TDS at 10%. This differs from the ₹50,000 or ₹1 lakh thresholds for interest paid by the listed banks and post office schemes.

Common mistakes to avoid

• Treating the ₹50,000 or ₹1 lakh threshold as an exemption from tax on interest.
• Assuming the threshold applies separately to each fixed deposit.
• Reporting only the interest remaining after TDS instead of gross interest.
• Omitting savings-account interest because the bank did not deduct TDS.
• Applying the bank threshold to company interest or securities without checking the relevant entry.
• Treating TDS deducted by the bank as the final tax on the interest.
• Quoting the earlier Act’s section number for a credit or payment event on or after 1 April 2026.
• Assuming Form 121 can be filed without meeting its eligibility conditions.
• Failing to reconcile bank-reported TDS with Form 168 and the tax return.

Frequently asked questions

What is the TDS rate on fixed-deposit interest in Tax Year 2026-27?

The general rate is 10% for covered interest other than interest on securities, subject to the applicable entry, threshold, and any valid certificate or declaration.

What is the bank-interest TDS threshold for a senior citizen?

For interest covered by Section 393(1), Table Serial No. 5(ii), the threshold is ₹1 lakh during the tax year for a senior citizen. It is ₹50,000 for a person who is not a senior citizen.

Is interest below the TDS threshold tax-free?

No. The threshold determines whether the payer must deduct TDS. Interest may still be taxable based on your total income and the applicable tax rules.

Is savings-account interest subject to bank TDS?

Savings-account interest is generally outside the bank’s time-deposit TDS rule, but it may still be taxable and should be considered when preparing your return.

Can I claim a refund if the bank deducted more TDS than my final tax?

You can generally claim eligible TDS credit in your return. If the credit exceeds your final tax liability, the excess may be refundable after the return is processed.