Will you have to pay higher TDS on your FD, RD interest income? What New Income Tax Act says

The Income Tax Department has recently issued a clarification on how tax deducted at source (TDS) will apply to interest earned from banks. Instead, clearing doubts, it has created more confusion. Many investors are now wondering whether higher TDS will be deducted and how their favourite fixed-income investment—Fixed Deposits (FDs)—will be taxed under the new rules.

What does the rule say?

Under the provisions of Section 194A of the Income-tax Act, 1961, tax is required to be deducted at source on interest other than interest on securities. However, in terms of provisions of section 194A(3), banking companies are not required to deduct tax where such interest does not exceed the prescribed threshold (Rs. 50,000/Rs. 1,00,000, as applicable).

What changed in the new law?

Under the new Income-tax Act, 2025, TDS on interest is covered under Section 393(1), while the definition of “banking company” is given in Section 402.

Now the confusion is earlier law clearly included banks covered under Section 51 of the Banking Regulation Act, 1949. But that is not mentioned in the new Act.

What clarification says and what it means?

It saiys despite the absence of specific mention, there is no change in the order. By virtue of Section 51 of the Banking Regulation Act, 1949, such banks and institutions continue to fall within the definition of “banking company” under the new law as well. So that means:

• Banks and eligible banking institutions will not deduct TDS on interest income below the prescribed thresholds
• The scope of institutions covered remains effectively unchanged
• Depositors will not face additional TDS merely due to definitional changes in the new law

How the TDS on bank interest stands now:

Fixed Deposits:

TDS of 10% on FD interest will be deducted.

If the account holder fails to provide pan, it becomes 20%

TDS will not be deducted from the FD interest of senior citizens as long as it does not exceed ₹1 lakh during the financial year, for other the general threshold is ₹50,000

Recurring Deposits

For recurring deposits the rules are similar to FDs

Savings Account:

Interest from savings accounts is generally exempt from TDS, but taxable up to ₹10,000 under section 80TTA.

How to avoid the TDS

If your total income is below the taxable limit, you can prevent TDS on fixed deposit interest by submitting Form 15G or Form 15H to your bank. Form 15H is meant for senior citizens aged 60 and above, while Form 15G is for individuals below 60.