Income Tax on Interest Income in India (2026)
Updated: 3 June 2026 — AY 2026-27
FD interest is 100% taxable at your income slab rate under "Income from Other Sources." Banks deduct TDS at 10% under Section 194A if FD interest exceeds ₹40,000/year (₹50,000 for senior citizens). PPF, NRE, and tax-free bond interest remain fully exempt.
10% TDS
Banks deduct TDS on FD interest above ₹40,000/year (₹50,000 for seniors) under Section 194A. Submit Form 15G / 15H if income is below the taxable limit to avoid deduction at source.
Taxability of Common Interest Income Types
| Interest Source | Taxable? | TDS? | Key Provision |
|---|---|---|---|
| Fixed Deposit (FD) | Yes — slab rate | 10% above ₹40K/yr | Sec 194A |
| Savings Account | Yes — slab rate | No TDS | Deduction: 80TTA ₹10K / 80TTB ₹50K |
| Recurring Deposit (RD) | Yes — slab rate | 10% above ₹40K/yr | Sec 194A |
| NRE Account | Exempt (NR status) | No TDS | Sec 10(4)(ii) |
| NRO Account FD | Yes — slab rate | 30% TDS (NR) | Sec 195 |
| FCNR Account | Exempt (NR status) | No TDS | Sec 10(4)(ii) |
| PPF | Exempt | No TDS | Sec 10(11) |
| Sukanya Samriddhi | Exempt | No TDS | Sec 10(11A) |
| NSC | Yes — accrual basis | No TDS | Reinvested interest: 80C eligible |
| Tax-Free Bonds (REC, NHAI) | Exempt | No TDS | Sec 10(15) |
| EPF / PF Interest | Exempt up to 9.5% | No TDS (if exempt) | Sec 10(11) / Sec 10(12) |
| P2P Lending Interest | Yes — slab rate | 10% (Sec 194A) | Schedule OS in ITR |
Section 80TTA vs 80TTB — Savings Interest Deduction
| Section | Who Can Claim | Deduction Limit | Covers FD/RD? |
|---|---|---|---|
| 80TTA | Individuals below 60; HUF | ₹10,000/year | No — savings accounts only |
| 80TTB | Senior citizens (60+) | ₹50,000/year | Yes — all bank/post office interest |
| Neither deduction is available under the New Tax Regime (Section 115BAC). | |||
How to Report Interest Income in ITR
All taxable interest income — FD, savings, RD, NSC accrual, P2P, etc. — must be reported in Schedule OS (Other Sources) of your ITR. Even if TDS has been fully deducted, the gross interest must be disclosed and the TDS credit claimed in Schedule TDS. Failure to disclose interest income can attract notice under Section 143(2) and penalty under Section 270A.
Interest from business loans, overdrafts used for business, or loans against FDs for business purposes may be reportable under "Profits and Gains from Business" if part of your business activities, and TDS credits still apply.
TDS on Interest — Form 15G and 15H
If your total income is below the basic exemption limit (₹2.5 lakh for below 60; ₹3 lakh for 60-80; ₹5 lakh for 80+), you can self-declare by filing Form 15G (non-seniors) or Form 15H (senior citizens) with your bank at the start of each financial year. Banks then do not deduct TDS on your FD interest. These forms are a declaration that your estimated total income is below the taxable threshold — submitting them when your income is actually taxable constitutes a false declaration and attracts penalty.
Frequently Asked Questions
Is FD interest fully taxable and at what rate?
Yes, interest earned on Fixed Deposits (FDs) is 100% taxable under the head "Income from Other Sources." There is no exemption or special flat rate — the interest is simply added to your total income and taxed at your applicable slab rate. For individuals in the 30% tax bracket, FD interest is taxed at 30% plus applicable surcharge and cess. TDS (Tax Deducted at Source) is deducted by the bank under Section 194A at 10% if your total FD interest from that bank exceeds ₹40,000 in a financial year (₹50,000 for senior citizens aged 60 or above). TDS is not a final tax — it is a prepayment of your actual liability. If your actual slab rate is higher than 10%, you must pay the differential through advance tax or self-assessment tax. Conversely, if your income is below the taxable threshold, you can submit Form 15G (under 60) or Form 15H (senior citizens) to your bank so that no TDS is deducted. Always disclose FD interest income in your ITR under "Schedule OS" even if TDS has already been deducted, since non-disclosure can attract penalty proceedings.
Is savings account interest taxable? What is the Section 80TTA deduction?
Interest earned on savings bank accounts (including cooperative bank savings accounts and post office savings accounts) is taxable under "Income from Other Sources." However, taxpayers below 60 years of age can claim a deduction under Section 80TTA up to ₹10,000 per year on savings account interest. This deduction is NOT available on FD, RD, or other deposit interest — only savings accounts qualify. Senior citizens (aged 60 and above) get a more generous deduction under Section 80TTB, which allows a deduction of up to ₹50,000 per year on all interest income — including savings account, FD, and RD interest. Section 80TTB completely replaces 80TTA for seniors. Practically, if a senior citizen earns ₹60,000 in FD interest and ₹8,000 in savings interest, total interest income is ₹68,000, and after the ₹50,000 deduction under 80TTB, only ₹18,000 is added to taxable income. Under the new tax regime (post-AY 2024-25), neither 80TTA nor 80TTB deductions are available — taxpayers must opt for the old regime to claim these deductions.
Which interest incomes are completely exempt from income tax?
Several categories of interest income are fully exempt from income tax in India. PPF (Public Provident Fund) interest is exempt under Section 10(11) — there is no upper limit on the exempt amount. Sukanya Samriddhi Yojana interest is fully exempt under Section 10(11A). Interest on NRE (Non-Resident External) accounts and FCNR (Foreign Currency Non-Resident) accounts is exempt for non-residents under Section 10(4). Interest on tax-free bonds issued by government bodies like REC, NHAI, HUDCO, and IRFC is exempt under Section 10(15)(iv)(h) — no TDS is deducted on these. EPF/Provident fund interest up to 9.5% per year is exempt under Section 10(11) (excess over 9.5% taxable from AY 2022-23 onwards, subject to contribution limits). Interest on certain government securities notified under Section 10(15) is also exempt. On the other hand, NRO FD interest, NSC interest, RD interest, P2P lending interest, and corporate bond interest are all fully taxable at slab rates. Always verify the specific instrument before assuming any exemption.
How is NSC (National Savings Certificate) interest taxed?
NSC interest has a dual tax treatment that many investors find confusing. Interest accrues annually on NSC but is not paid out — it is reinvested. For tax purposes, you must recognise this interest on an accrual basis each year, not just in the year you redeem the NSC. The accrued interest for years 1 through 4 (for a 5-year NSC) is treated as a fresh investment in NSC, and you can claim it as a deduction under Section 80C (subject to the ₹1.5 lakh overall 80C limit). This effectively makes those years tax-neutral for many investors. In the 5th and final year, the interest that accrues is NOT reinvested — it is paid out at maturity — and this final year's interest is fully taxable at slab rates with no 80C relief. If your NSC investment is modest and you are within the 80C limit, the first four years' interest is deductible, reducing your net tax on NSC to nearly zero. You must disclose the accrued NSC interest every year in your ITR under "Schedule OS," even if you have not received the money. TDS is not deducted on NSC interest by the post office.
What is the tax treatment of interest on home loans and business loans?
Home loan interest is not an "other income" item — it is a deduction against "Income from House Property." Under Section 24(b), you can deduct up to ₹2,00,000 per year in interest paid on a home loan for a self-occupied property. For a let-out or deemed let-out property, there is no upper cap on interest deductibility against rental income, though losses are restricted to ₹2 lakh for set-off against other heads (the balance can be carried forward for 8 years). Under the new tax regime, Section 24(b) deduction for self-occupied property is NOT available, though for let-out properties it continues. Business loan interest — whether taken by a sole proprietor, partnership, or company for business purposes — is fully deductible as a business expense under Section 37(1) with no ceiling. There is no TDS on loan interest paid by individuals to banks, but for certain inter-corporate loans, TDS under Section 194A applies. Peer-to-peer (P2P) lending interest received is taxable as other income, but interest paid on P2P borrowings for business purposes can be claimed as a deduction by the borrower.
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