Fixed deposits continue to be one of the most trusted investment options for senior citizens in India. Safety of capital, assured returns, and predictable income make FDs especially suitable for retirees. However, many senior citizens are still unclear about how FD interest is taxed, what deductions are available, and how they can legally reduce their tax liability.
This article explains in simple terms how fixed deposit interest is taxed for senior citizens in the financial year 2025–26, along with deductions, TDS rules, and ways to avoid unnecessary tax deduction.
Is Fixed Deposit Interest Taxable for Senior Citizens
Yes, interest earned on fixed deposits is fully taxable even for senior citizens. FD interest is treated as income from other sources under the Income Tax Act. This interest income is added to the total annual income of the senior citizen and taxed according to the applicable income tax slab rate.
There is no automatic tax exemption on FD interest. However, senior citizens receive special benefits in the form of higher exemption limits and specific deductions, which help reduce their tax burden.
also read: https://gstandtax.com/how-income-tax-department-tracks-fd-interest/
Income Tax Slabs Applicable to Senior Citizens
Under the old tax regime, senior citizens enjoy higher basic exemption limits compared to non-senior taxpayers. Individuals aged between 60 and 80 years get a basic exemption limit of up to three lakh rupees, while super senior citizens aged 80 years and above get an exemption limit of up to five lakh rupees.
Income exceeding these limits is taxed according to slab rates. Because of these higher exemption limits and available deductions, most senior citizens prefer the old tax regime over the new tax regime.
The new tax regime does not provide higher exemption limits or special deductions like Section 80TTB, making it less beneficial for most senior citizens who depend on interest income.
Section 80TTB Deduction for Senior Citizens
Section 80TTB is one of the most important tax benefits available to senior citizens. Under this section, a senior citizen can claim a deduction of up to fifty thousand rupees in a financial year on interest income earned from bank deposits and post office deposits.
This deduction applies to interest earned from fixed deposits, recurring deposits, savings accounts, and post office schemes. The deduction is available on the total combined interest income and not separately for each account.
For example, if a senior citizen earns interest from multiple fixed deposits and savings accounts, the total interest is calculated first, and then the deduction of up to fifty thousand rupees is applied.
TDS Rules on FD Interest for Senior Citizens in FY 2025–26
From the financial year 2025–26, the government has increased the TDS threshold for senior citizens. Banks will deduct tax at source only if the total interest income from deposits with that particular bank exceeds one lakh rupees in a financial year.
This higher threshold provides significant relief to senior citizens who earn moderate interest income and prevents unnecessary TDS deductions.
If TDS is applicable, the bank deducts tax at the rate of ten percent, provided the senior citizen has submitted their PAN. If PAN is not submitted, TDS is deducted at a higher rate.
It is important to understand that TDS is not the final tax. Actual tax liability depends on total income after deductions, and any excess TDS deducted can be claimed as a refund while filing the income tax return.
also read: https://gstandtax.com/small-savings-schemes-interest-rates-2026-latest/
How Senior Citizens Can Avoid TDS on FD Interest
If a senior citizen’s total taxable income after deductions is below the basic exemption limit, they can submit Form 15H to the bank. This form is a self-declaration stating that no tax is payable for the financial year.
Form 15H should be submitted at the beginning of the financial year and must be submitted separately to each bank where the senior citizen holds fixed deposits. Once the form is submitted, the bank will not deduct TDS on interest payments.
Tax Treatment of Tax-Saving Fixed Deposits
Senior citizens can also invest in five-year tax-saving fixed deposits. The amount invested in such FDs, up to one lakh fifty thousand rupees, qualifies for deduction under Section 80C.
However, it is important to note that only the principal amount invested is eligible for deduction. The interest earned on tax-saving fixed deposits remains fully taxable and is added to income every year.
Common Mistakes Senior Citizens Should Avoid
Many senior citizens assume that FD interest is completely tax-free, which is incorrect. Some forget to claim the Section 80TTB deduction while filing their return. Others fail to submit Form 15H on time, leading to unnecessary TDS deduction.
Another common mistake is ignoring interest earned from multiple banks. Interest income from all sources must be combined and reported in the income tax return, even if TDS has already been deducted.
Are Fixed Deposits Still a Good Option for Senior Citizens
Despite being taxable, fixed deposits remain a reliable investment choice for senior citizens because they offer guaranteed returns, capital safety, and easy liquidity. Banks also provide higher interest rates to senior citizens compared to regular depositors.
However, for better tax efficiency, senior citizens should consider diversifying their savings with other government-backed schemes such as the Senior Citizen Savings Scheme or Post Office Monthly Income Scheme, along with fixed deposits.
Official Sources to Verify This Information
For accurate and up-to-date tax rules, senior citizens can refer to the official Income Tax Department website
https://www.incometax.gov.in
Details about TDS provisions and forms like Form 15H are available on the Central Board of Direct Taxes section of the Income Tax portal
https://www.incometax.gov.in/iec/foportal/help/tds-on-interest-income
Information related to banking deposits and senior citizen benefits can also be cross-checked on the Reserve Bank of India website
https://www.rbi.org.in
Final Conclusion
Interest earned on fixed deposits is taxable for senior citizens, but the government provides meaningful relief through higher exemption limits, Section 80TTB deduction, and an increased TDS threshold. With proper planning, correct choice of tax regime, and timely submission of Form 15H, senior citizens can significantly reduce their tax liability and improve post-tax returns on their fixed deposits.