New TDS Rules on FD Interest 2026: Government Issues Clarification — Every Question Answered

New TDS Rules on FD Interest 2026: Government Issues Clarification — Every Question Answered

The confusion around the definition of "banking company" in the new Income Tax Act 2025 has now been cleared up. With this clarification, it's finally clear — how, when, and what TDS will be charged on FD interest for ordinary investors.

If you have a fixed deposit in a bank, this is important news for you. The government has issued a clarification on the TDS confusion that arose under the new Income Tax Act 2025. It's now clear exactly when TDS will be deducted and when it won't. The good news? Small investors get significant relief. Let's break it all down in a simple Q&A so you know exactly how this affects your FD.

FD and TDS — What Changed Under the New Law?

Q1. What is the TDS rule on FD interest?

A. When you open a fixed deposit with a bank, the interest you earn is treated as income. Under Section 194A of the Income Tax Act, 1961, banks deduct TDS on this interest. But if your interest stays below the TDS exemption limit — ₹50,000 for regular investors, or ₹1,00,000 for senior citizens — no TDS is deducted at all.

Q2. Why did the new law create confusion?

A. The Income Tax Act 2025 covers TDS on interest under Section 393(1). But the definition of "banking company" was written differently in Section 402. Unlike the old law, it didn't directly mention all banking institutions — which made people think the rules had changed.

Q3. What exactly looked different compared to before?

A. The old law explicitly included banks and other banking institutions under the umbrella of "banking company." The new law didn't spell that out as clearly, raising doubts that some institutions might have been left out.

Q4. What has the government clarified?

A. The government (CBDT) has made it clear that even though Section 51 isn't referenced in the new law, all banks and institutions — including co-operative banks — that fall under the Banking Regulation Act, 1949 are still covered under the banking company definition 2025. In short, nothing has changed.

Q5. How does this affect your FD?

A. If the interest on your FD is below the threshold, your bank won't deduct TDS. This applies to post office FDs as well. Everything stays exactly as it was before. You don't need to worry about unexpected tax deductions.

Q6. Why is this big news for small investors?

A. Small investors often get TDS deducted unnecessarily and then have to go through a long refund process. This clarification — a significant win for investor relief in 2025 — means you can avoid that hassle going forward.

Q7. What changed for banks?

A. Banks now have complete clarity on the rules. They follow the same old system — no TDS below the specified limit.

What Is the TDS Limit for Senior Citizens?

Senior citizens (60 years and above) get a TDS exemption limit of ₹1,00,000 on FD interest — double the ₹50,000 limit for regular investors. If you have elderly family members with FDs, this relief is even bigger for them. This limit continues into financial year 2025-26 as well.

The government has made it clear — the TDS rules on your FD have not changed. The same system applies under the Income Tax Act 2025 — no TDS on interest up to the specified limit.

TDS Basics — Everything You Need to Know

Already familiar with TDS? Feel free to skip ahead to the action steps below.

Q. What is TDS?

A. TDS stands for Tax Deducted at Source. It means that when you earn income, a portion of it is deducted as tax right at the point of payment, before the money reaches you. That deducted amount is deposited directly with the government.

Q. When is TDS deducted?

A. TDS is deducted when your income crosses a specified threshold. For example:

• On salary payments
• On interest from bank FDs or savings accounts
• On rent income
• On professional fees or commission

Each category has its own limit and deduction rate.

Q. How does TDS get deducted?

A. The person or institution paying you — like your employer or your bank — is the one that deducts TDS.

Example — if your FD earns ₹60,000 in interest and the limit is ₹50,000, the bank deducts TDS at the applicable rate and pays you the rest. Your employer deducts TDS from your salary every month. The entire record of deducted TDS is linked to your PAN number.

Q. Why is TDS deducted?

A. The government's goal is to collect tax gradually throughout the year rather than in one large amount at year-end. This means:

• The government gets regular income through the year
• Tax evasion is reduced
• People aren't hit with a massive tax bill all at once

Q. Is TDS the final tax you pay?

A. No. TDS is essentially advance tax. Your actual tax liability is calculated when you file your ITR (Income Tax Return) at the end of the financial year.

• If more TDS was deducted than your liability — you get a refund
• If less was deducted — you pay the balance

Q. How can you avoid TDS on FD?

A. If your total income is below the taxable income limit, you can submit Form 15G or Form 15H at your bank. The bank will then not deduct TDS. Form 15G is for regular investors; Form 15H is for senior citizens. [EXT LINK: How to fill Form 15G and 15H → incometax.gov.in]

Q. What if TDS has already been deducted?

A. You can file your ITR and claim a TDS refund. The government deposits the money back into your account. Your full TDS record is available in Form 16A, which your bank provides.

What Should You Do Right Now?

If your FD interest is anywhere close to the limit, go ahead and submit Form 15G or Form 15H at your bank today. If TDS has already been deducted in the past, file your ITR and claim the refund — the process is fully online and straightforward. 

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