TDS on Salary & FD in 2026-27: Thresholds, 10% Rate, Refunds

What TDS Actually Is

TDS is tax collected at the point of payment. Your employer, your bank, or a company paying you a dividend deducts a slice and deposits it with the government against your PAN. When you file your income-tax return, the total tax on your actual income is computed, the TDS already deposited is credited, and the difference is either refunded to you or payable by you. That single idea explains almost every TDS surprise. A deduction is an instalment estimated from incomplete information — your employer knows your salary but not your other income; your bank knows your FD interest but not your salary slab. Only the return puts the whole picture together.

Salary TDS: Slab Rates, Monthly Instalments

Salary TDS is deducted under Section 192 of the Income-tax Act, 1961 (Section 392 under the Income-tax Act, 2025, which applies from 1 April 2026). There is no flat rate: the employer estimates your annual taxable salary, computes the tax on it at slab rates, and deducts roughly one-twelfth each month. For FY 2026-27, the new-regime slabs per ClearTax's TDS rate chart are: nil up to ₹4 lakh; 5% from ₹4–8 lakh; 10% from ₹8–12 lakh; 15% from ₹12–16 lakh; 20% from ₹16–20 lakh; 25% from ₹20–24 lakh; and 30% above ₹24 lakh. The standard deduction is ₹75,000 (new regime) or ₹50,000 (old regime). The new-regime Section 87A rebate of up to ₹60,000 means taxable income up to ₹12 lakh attracts no tax — so a salary up to ₹12,75,000 can pay nil tax after the standard deduction. Old-regime slabs run nil to ₹2.5 lakh, 5% to ₹5 lakh, 20% to ₹10 lakh and 30% above.

Worked example, new regime. Gross salary ₹15,00,000 less the ₹75,000 standard deduction gives taxable income of ₹14,25,000. Tax: ₹20,000 on the ₹4–8 lakh slab at 5%, ₹40,000 on the ₹8–12 lakh slab at 10%, and ₹33,750 on the remaining ₹2,25,000 at 15% — ₹93,750, plus 4% cess of ₹3,750, giving ₹97,500 a year, or about ₹8,125 a month in TDS. This matches the ₹15 lakh figure in this site's 20 October regime-switching guide. It is an illustration: allowances, deductions and other income change the real figure.

FD Interest TDS: The ₹50,000 and ₹1 Lakh Triggers

Interest on bank and post-office deposits faces TDS under Section 194A at 10% when PAN is provided. The trigger, raised by Budget 2025 and continuing in FY 2026-27, is yearly interest above ₹50,000 for general depositors and above ₹1,00,000 for senior citizens (aged 60 and above). For interest from NBFCs, companies and other non-bank payers, the threshold is ₹10,000. Savings-account interest faces no TDS, though it remains taxable as income. Three details matter. First, the threshold is calculated on total interest across all deposits with the same bank under your PAN — core banking systems aggregate branches — not FD by FD. Second, once the threshold is crossed, TDS applies to the entire interest amount, not merely the excess above the threshold. Third, TDS is deducted when interest is credited, even if you do not withdraw it.

Worked examples. A general depositor earning ₹80,000 in FD interest crosses the ₹50,000 trigger, so TDS is ₹8,000 at 10% on the full ₹80,000. A senior citizen earning ₹1,20,000 crosses the ₹1,00,000 trigger, so TDS is ₹12,000 at 10%. Without a PAN, Section 206AA pushes the rate to 20% — ₹16,000 on that ₹80,000. In every case the deduction is only an instalment: higher-slab depositors owe the balance on filing; those below the taxable limit can claim a refund. If your total income is below the taxable limit, you can prevent the deduction in advance: Form 121, the unified declaration form that replaced Forms 15G and 15H from 1 April 2026, lets eligible depositors declare that no TDS should be deducted — declare before the bank deducts, not after. This site's 2 October FD-TDS guide covered the older forms and the new form's arrival.

Dividends and Mutual Funds: 10% Above ₹10,000

Two more everyday rates complete the picture. Dividends face 10% TDS above ₹10,000 a year under Section 194, and mutual-fund income faces 10% above ₹10,000 under Section 194K, per ClearTax's FY 2026-27 chart. One secondary chart lists the dividend threshold as ₹5,000; this article follows ClearTax and TheMunim at ₹10,000 and flags the conflict. As with FD interest, this TDS is advance tax — and dividends themselves are taxed at your slab rate.

Trap 1: The Threshold Is Not an Exemption

The most expensive misunderstanding in Indian tax is reading "₹50,000 threshold" as "₹50,000 tax-free". It is not. The threshold decides only whether the bank must deduct tax in advance. The interest itself is fully taxable at your slab rate from the first rupee, as "income from other sources" (senior citizens get a separate ₹50,000 deduction on interest income under Section 80TTB in the old regime — a deduction, not a TDS threshold, and this article does not conflate the two). The practical consequence: a person in the 30% slab with ₹80,000 of FD interest has ₹8,000 deducted but owes ₹24,000 on it — a ₹16,000 shortfall payable on filing, plus possible interest for delayed advance tax if large. Conversely, a person with no taxable income who never files leaves the deducted ₹8,000 with the government.

Trap 2: Filing From Form 16 Alone

Your paper trail has three layers, and checking only one is where refund delays and tax demands start: Form 16: the annual salary TDS certificate from your employer, issued through TRACES. Form 16A: quarterly TDS certificates for non-salary payments, such as FD interest. Form 26AS: the PAN-linked tax-credit statement showing all TDS deposited against you. AIS (Annual Information Statement) and TIS (Taxpayer Information Summary): the wider statements covering securities transactions, dividends, interest and high-value transactions, with TIS as the summary. Reconcile all three before filing. A common pattern, reported by PolicyBazaar and others: Form 16 shows ₹80,000 of TDS, but Form 26AS credits only ₹60,000 — usually because a deductor missed a quarterly filing. Claiming the full ₹80,000 invites a notice; the fix runs through the deductor, not the return. Under the Income-tax Act, 2025, form numbers change — reported as Forms 130/131/168 from 1 April 2026 by a single source — so match documents by content, not number alone, this cycle.

Refunds, Shortfalls and What to Do This Week

If TDS exceeds your final liability, the excess comes back as a refund after filing and processing. If it falls short, pay the balance — as advance tax during the year where the shortfall is large, or as self-assessment tax with the return — to limit interest charges. Either way, the return is the settlement, and TDS is only the deposit. A short checklist: 1. Check your PAN is linked with your bank and employer — an unlinked or inoperative PAN can push deductions to 20%. 2. Add up FD interest across all branches of each bank, not per FD, and compare it with the ₹50,000 or ₹1,00,000 trigger. 3. If your total income is below the taxable limit, file Form 121 with the bank before interest is credited. 4. Download Form 26AS and AIS, and match them against Form 16 and 16A, before filing — not after a notice arrives. 5. Remember that salary TDS at slab rates and FD TDS at 10% are computed on different information; only your return combines them.

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.

Sources: ClearTax TDS rate chart FY 2026-27 (slabs; 194A thresholds ₹50,000/₹1,00,000 at 10%; 194/194K at 10% above ₹10,000), corroborated by Stable Money, BadaBanker, Fingtaj and Numvexa; Section 206AA 20% rule per PolicyBazaar/ArthGyaan; Form 16/26AS/AIS reconciliation per PolicyBazaar and 1Finance; Form 121 from 1 April 2026 per BadaBanker and this site's 2 October guide. New-Act form numbers are single-sourced and hedged as reported; the dividend-threshold conflict is flagged in the body.