TDS on FD Interest in 2026: New ₹50,000 / ₹1 Lakh Limits and Form 121, Explained Simply

You open your FD statement and the interest is lower than promised. Your bank took a cut — 10% — before you ever saw it. That cut is TDS, and in 2026 the rules around it changed in ways almost nobody has explained in one place. This is that place. Since Budget 2025, banks deduct 10% TDS on your FD interest if it crosses ₹50,000 in a financial year (₹1,00,000 for senior citizens). TDS is not your final tax — the full interest is added to your income and taxed at your slab rate. If your total income is below the taxable limit, file Form 121 (which replaced 15G/15H from April 2026) with your bank to stop the deduction.

First, the confusion that costs people money: TDS is not tax

This is the single most misunderstood line in Indian fixed-income investing: TDS (tax deducted at source) is a collection mechanism, not your final tax bill. Your FD interest is fully taxable. It is added to your total income for the year and taxed at your slab rate — whether you chose the old regime or the new one. The 10% your bank withholds is just the government's way of collecting part of that tax in advance. At filing time, you declare the full interest, compute your actual tax, and the TDS already deducted is credited against it. If too much was cut, you claim a refund. If too little — say you're in the 30% slab — you owe the difference. Why does this matter? Because two common beliefs are wrong: "TDS was cut, so I'm done" (wrong — you may owe more) and "my interest was below the limit, so it's tax-free" (wrong — it may simply have escaped TDS while still being fully taxable). Hold that thought.

The new 2026 limits: ₹50,000 and ₹1,00,000

Budget 2025, effective April 1, 2025, raised the TDS thresholds under Section 194A: General investors — the bank must deduct TDS only if your interest from that bank crosses ₹50,000 in a financial year (raised from ₹40,000). Senior citizens (60+) — the threshold is ₹1,00,000 (raised from ₹50,000). The TDS rate stays 10% if your PAN is on record — and jumps to 20% if it isn't. That 20% figure surprises people every year; if your PAN isn't linked to your bank account, the deduction doubles, and you discover it on your Form 26AS. Two fine-print points banks apply but rarely explain: 1) The limit is per bank, per year — not per FD. If you hold three FDs at the same bank earning ₹20,000 each, your ₹60,000 total crosses the ₹50,000 threshold and TDS applies. Spread FDs across banks and each bank tests its own threshold. 2) Interest credited, not interest received. In a cumulative (reinvestment) FD, interest is "accrued" yearly even though you receive nothing until maturity. The bank can deduct TDS on that accrued interest each year.

So how much tax do you actually pay on FD interest?

Work a quick example. You earn ₹1,00,000 of FD interest in FY 2026-27, and your other income puts you in the 30% slab (new regime). Your bank deducts 10%, i.e. ₹10,000, if you crossed the threshold. But your actual tax on that interest is 30% — ₹30,000. You owe ₹20,000 more at filing time. TDS kept you 10% honest; the slab collects the rest. Now the opposite case: you're a student or a first-jobber with ₹2,00,000 of total income, well below the taxable limit, and your bank cut ₹8,000 on ₹80,000 of FD interest. Your actual tax on that interest: zero. You claim the full ₹8,000 back as a refund in your ITR. This is exactly why filing matters even when you owe nothing — FD-backed credit cards and student savings accounts quietly generate TDS-eligible interest for people with no tax liability.

Form 121: the single form that replaced 15G and 15H (from April 1, 2026)

For years, the escape hatch was two forms: 15G (under-60, no-tax-liability investors) and 15H (senior citizens). From April 1, 2026, the Income-tax Act, 2025 — which received Presidential assent on August 21, 2025 — replaced both with a single unified declaration: Form 121. What changes in practice: One form for everyone eligible — no more 15G-vs-15H confusion based on age. Eligibility unchanged in spirit: you must be a resident individual whose estimated total income for the year is below the basic exemption limit, meaning no tax is payable. Companies and NRIs cannot file it. Valid for one financial year, filed separately with each bank/deductor — the annual ritual continues, just under one form number. File it at the start of the financial year (or when you open the FD), because TDS already deducted cannot be un-deducted by the bank — you then recover it only through your ITR. The trap that catches people: submitting the form after TDS was already cut. The bank's obligation is to the tax department, not to your timing. Early filing is the entire game.

Senior citizens: the ₹1 lakh rule most people read backwards

The most repeated misunderstanding of 2026: "senior citizens get ₹1 lakh of FD interest tax-free now." No. The ₹1,00,000 figure is the TDS trigger — below it, no TDS is deducted. The interest is still fully taxable income. The actual senior-citizen relief is a different provision entirely: Section 80TTB, which allows resident senior citizens a deduction of up to ₹50,000 per year on interest income (FD, RD, savings account combined) under the old regime. TDS trigger: ₹1,00,000. Real tax relief: ₹50,000 under 80TTB. Two different numbers, two different laws — and every casual conversation about "the new senior citizen rule" mashes them together.

The NRI corner: different rules entirely

If you hold NRO deposits, the friendly thresholds don't apply. Interest on NRO accounts is taxed at a flat 30% (plus applicable surcharge and cess) under Section 195, with no minimum threshold — TDS starts from the first rupee. Form 121 is not available to NRIs. The counterpoint: NRE deposits are fully exempt from tax in India — no tax, no TDS — provided you qualify as an NRI under the tax law. The NRO-vs-NRE distinction is one of the highest-value tax decisions an NRI makes, and it belongs at account-opening time, not at filing time.

How to check what's actually been deducted: 26AS and AIS

Don't trust memory — trust the government's ledger. Form 26AS and the Annual Information Statement (AIS) on the income-tax portal show every rupee of TDS deducted against your PAN, quarter by quarter, deductor by deductor. Before filing your ITR, reconcile: does the TDS in 26AS match your bank statements? Mismatches — wrong PAN mapping, a bank that forgot to deposit the TDS, interest credited to the wrong year — are common enough that the compliance world treats reconciliation as mandatory, not optional. If TDS was deducted but doesn't appear in 26AS, the credit won't reach you until the deductor corrects its return.

A 2026 closer: the new rate-transparency rule changes how you pick FDs

One more 2026 change belongs in every FD conversation now. From October 1, 2026, RBI's bulk-deposit directions require banks to publish their deposit rates every morning. The practical upshot: rate shopping is suddenly much easier, and the best rate for your tenure may not be at your home bank. When you move an FD for a better rate, remember this article's per-bank rule — each new bank tests its own ₹50,000 threshold fresh, and each needs its own Form 121.

The one-page checklist

Know your threshold: ₹50,000 (₹1,00,000 if 60+). Per bank. Per financial year. Keep PAN linked to every bank account, or TDS doubles to 20%. If your income is below the taxable limit, file Form 121 with each bank at the year's start — not after TDS is cut. Senior citizens: ₹1L is the TDS trigger; ₹50K under 80TTB is the real relief. NRO: flat 30%, no threshold, no Form 121. NRE: tax-free in India. Cumulative FDs: TDS can hit on accrued interest, not just at maturity. Reconcile 26AS/AIS before filing; claim refunds for excess TDS in your ITR. Rate-shopping under the new transparency rule? Re-file Form 121 at the new bank. TDS was never the tax. It was always just the down payment. The investors who understand that sentence keep more of their interest than the ones who don't. This article is for educational purposes only and is not financial advice. Please consult a SEBI-registered investment adviser for personalized guidance. Investments are subject to market risk.