Tax on Interest Income in India: Deposits, Savings Accounts and Bonds

Interest can be taxable even when no tax was deducted at source. Keep these as two separate questions:

1. Is the interest included in taxable income under the applicable rules?
2. Was the payer required to deduct TDS?

Fixed and recurring deposits

Bank FD and RD interest is generally considered under “income from other sources,” subject to applicable deductions and taxpayer circumstances. RD is included within the Section 194A definition of time deposits.

For interest on relevant time deposits with a banking company, specified co-operative bank or post office, the Section 194A threshold from 1 April 2025 is:

• ₹50,000 in a financial year in the general case; and
• ₹1,00,000 where the payee is a resident senior citizen as defined by the provision.

Other Section 194A payer or payment categories can have a different threshold. Do not apply the bank time-deposit threshold to every interest payment.

TDS is not final tax

A TDS threshold determines whether tax may be deducted at source. It does not make interest below the threshold tax-free and does not determine the final liability.

Final treatment depends on total income, the applicable regime, deductions, credits and other facts. TDS already deducted is normally a credit in the return; additional tax or a refund may arise after the complete computation.

Savings-account interest

Section 80TTA and Section 80TTB are deductions subject to their statutory conditions and the tax regime under which they are available. Section 80TTA does not convert FD or RD interest into savings-account interest.

PPF and other instruments

Do not infer tax treatment from the issuer or product label alone. PPF treatment, notified tax-free bonds, RBI bonds, corporate bonds, government securities, NSC and peer-to-peer lending can follow different provisions. Check the instrument and current statute rather than assuming every government-linked instrument is exempt.

Illustrative mechanics

If a bank credits ₹45,000 of FD interest and no TDS is required under the applicable threshold, the ₹45,000 is not automatically tax-free. It still belongs in the taxpayer's complete income computation where required.

Common mistakes

• Treating “no TDS” as “no tax.”
• Using the pre-1 April 2025 ₹40,000/₹50,000 thresholds as current bank-deposit limits.
• Applying Section 80TTA to FD or RD interest.
• Comparing products with an assumed personal slab and calling one universally better.
• Omitting interest merely because it does not appear in a TDS certificate.

Sources

• Income Tax Department: Section 194A
• Income Tax Department: Salaried individuals and Chapter VI-A deductions, AY 2026-27
• Income Tax Department: Income from other sources

Educational information, not tax advice. Verify the applicable year, payer category and taxpayer facts.