Income Tax on Fixed Deposits (FD) – What You Need to Know

Fixed deposits (FD) have long been a popular investment choice for individuals looking for safe and guaranteed returns. However, many people are unaware that income earned from these deposits is subject to tax. Let’s take a closer look at how the government plans to regulate taxes on FDs and the important updates you should be aware of.

Tax on Fixed Deposit Returns

As per current regulations, the interest earned on fixed deposits is considered as part of your total income and is taxable. The tax rate varies based on your income bracket and the amount of interest you earn from your FD.

In the 2025-2026 Union Budget, Finance Minister Nirmala Sitharaman is expected to announce changes regarding tax on fixed deposits, with speculations about possible relief for FD holders.

Possible Relief in the 2025 Budget

Recent reports suggest that the government may offer tax relief on fixed deposits in the upcoming budget. According to sources, including the State Bank of India (SBI), a recommendation has been made to remove taxes on fixed deposits entirely. This is a crucial update for FD holders, as it means there’s a high likelihood (99%) that no additional tax will be imposed on FD investments.

Current Tax Rate on Fixed Deposits

Currently, the interest income from FDs is taxed according to the individual’s income tax bracket. The applicable tax rates range from 5% to 30%, depending on your overall income.

If your annual interest earnings from fixed deposits exceed ₹40,000, you will be subject to a 10% tax on the excess amount. However, if you’re in the highest tax bracket (30%), you may face significant tax charges.

15% Tax Update

For those investing in fixed deposits, the 2025 budget could introduce a new tax provision. It is expected that the government might announce a 15% tax rate on FD interest, offering a lower rate for some individuals who would otherwise pay higher taxes under the current system.

Conclusion

For now, fixed deposit interest is taxed based on your income level, but there’s a possibility of changes in the 2025 budget. If you’re an FD investor, you may see some relief in the form of lower taxes. It’s important to stay updated with the budget announcements to understand how these changes could benefit you.