The Income Tax Department has said there is no increase in TDS on interest earned from fixed deposits and recurring deposits under the new Income-tax Act, 2025. The clarification comes as many depositors feared fresh tax deductions after changes in the wording of the law.
The update brings relief for bank customers who were unsure whether FD and RD interest would face higher TDS from April 2026. The department said existing thresholds and treatment remain the same despite the renumbering of provisions.
The confusion began after TDS on interest, earlier covered under Section 194A of the Income-tax Act, 1961, moved to Section 393(1) of the new law. The definition of a banking company is now covered under Section 402. Some depositors feared that the omission of a specific reference to Section 51 of the Banking Regulation Act, 1949, could widen TDS liability.
Clarification on TDS on interest u/s Section 194A in the case of banking institutions.
— Income Tax India (@IncomeTaxIndia) March 30, 2026
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…
What Changed
The department said the legal scope has not changed. Banks and institutions covered earlier will continue to be treated as banking companies under the new Act.
"Under the Income-tax Act, 2025, the corresponding provision relating to TDS on interest is contained in Section 393(1) [Table: Sl. No. 5(ii)], and the definition of "banking company" has been provided in Section 402 of the Act," the department said.
ALSO READ: FD Interest Rates: These Small Finance Banks Offer Up to 8.10%
It added that the definition in Section 402 refers to banking companies to which the Banking Regulation Act, 1949 applies.
The clarification means depositors will not face extra TDS only because of definitional changes in the new law. For most savers, deduction rules on bank interest remain exactly as before.
Banks will continue to deduct TDS at 10% on FD and RD interest above the prescribed limit. If PAN is not provided, the rate rises to 20%.
For senior citizens, no TDS will apply if total interest income from deposits does not exceed Rs 1 lakh in a financial year. For other individuals, the threshold remains Rs 50,000.
Interest earned on savings accounts will continue to have no TDS, though it remains taxable beyond Rs 10,000 under Section 80TTA.
Taxpayers whose total income is below the taxable limit can still avoid TDS by submitting Form 15G or Form 15H to their banks.
Form 15H applies to senior citizens aged 60 years and above. Form 15G applies to individuals below 60 years.
ALSO READ: Beyond Interest Rates: Five Checks Before You Park Your Money In A Bank Fixed Deposit
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
