How to Report Interest Income from FDs and Savings Accounts in ITR (AY 2025–26)
- PRITI SIRDESHMUKH
- 1 hour ago
- 9 min read
Interest earned from fixed deposits (FDs) and savings bank accounts is fully taxable under the head “Income from Other Sources” as per the Income Tax Act, 1961. Many taxpayers often overlook this income or report it incorrectly, leading to mismatches in the Annual Information Statement (AIS). Whether the amount is small or substantial, it must be disclosed while filing your Income Tax Return (ITR). Correct reporting ensures compliance, prevents penalty notices, and helps claim eligible deductions such as Section 80TTA or 80TTB.
Table of Contents
Understanding Taxability of Interest Income
Interest earned from fixed deposits (FDs) and savings bank accounts is categorized under “Income from Other Sources” as per the Income Tax Act, 1961. This means the interest must be added to the total taxable income and taxed according to the individual’s applicable slab rate. The taxability applies to both accrued and received interest, even if the amount has not been withdrawn from the account. Many taxpayers mistakenly assume that small savings account interest or bank interest under ₹10,000 is exempt, but it is taxable; only deductions under specific sections such as 80TTA or 80TTB provide relief within prescribed limits.
Interest from Fixed Deposits and Savings Accounts – Key Differences
Interest from savings accounts and fixed deposits may appear similar but differ in how they are taxed and what deductions are available. Fixed deposit interest is fully taxable each year, regardless of whether it is withdrawn or not. Banks usually credit the interest quarterly or annually, and this amount must be reported for that financial year. On the other hand, interest from savings accounts, though taxable, qualifies for a deduction of up to ₹10,000 under Section 80TTA for individuals and HUFs. Senior citizens can claim up to ₹50,000 under Section 80TTB, which covers both savings and fixed deposit interest.
How Banks Deduct TDS on FD and Savings Interest
Banks deduct Tax Deducted at Source (TDS) when the interest earned on fixed deposits exceeds ₹40,000 in a financial year. For senior citizens, the limit is ₹50,000. The TDS rate is 10% if the depositor has provided their PAN details; if PAN is not linked, the rate increases to 20%. TDS is deducted at the time the interest is credited, not at maturity. Individuals whose total income is below the taxable limit can avoid TDS by submitting Form 15G (for those below 60 years) or Form 15H (for senior citizens). These forms must be submitted at the beginning of each financial year to ensure timely exemption from TDS deduction.
Reporting Interest Income from FDs and Savings Accounts in ITR
To report interest income accurately, taxpayers must first collect interest certificates or annual statements from all banks and financial institutions. The total interest from all fixed deposits, savings, and recurring deposits should be added together and reported under “Income from Other Sources” while filing the ITR. The deducted TDS should be cross-verified with Form 26AS and the Annual Information Statement (AIS) to ensure accuracy. Eligible deductions under Section 80TTA or 80TTB should then be claimed before computing the total tax liability. TaxBuddy offers a seamless filing process by automatically fetching AIS data and ensuring all interest entries are correctly captured and reconciled.
Which ITR Form Should You Use to Report Interest Income?
Taxpayers earning interest income need to choose the correct ITR form to avoid filing errors. ITR-1 (Sahaj) is suitable for individuals with total income up to ₹50 lakh and interest income under “Other Sources.” However, if the taxpayer also has income from capital gains, multiple properties, or foreign sources, they must use ITR-2. Choosing the right form ensures that deductions, TDS credits, and income details are processed accurately by the tax department without causing validation errors.
Is Interest Income Deductible Under the New Tax Regime?
Under the new tax regime introduced under Section 115BAC, most deductions and exemptions have been removed, including those under Sections 80TTA and 80TTB. This means taxpayers opting for the new regime cannot claim deductions for savings or FD interest. However, the interest income still needs to be reported as “Income from Other Sources.” Taxpayers should evaluate which regime — old or new — results in lower tax liability before filing. TaxBuddy’s online calculator and comparison tool can help assess this difference easily before selecting the regime.
How 80TTA and 80TTB Deductions Work in the Old Tax Regime
Section 80TTA allows individuals and Hindu Undivided Families (HUFs) to claim a deduction of up to ₹10,000 for interest earned on savings accounts held with banks, co-operative societies, or post offices. This deduction does not apply to fixed deposits. For senior citizens, Section 80TTB offers a higher limit of ₹50,000, which includes both savings and fixed deposit interest. To claim these deductions, taxpayers must file their ITR under the old tax regime and ensure the interest income has been reported correctly before applying the deduction.
Step-by-Step Example for Reporting Interest Income (AY 2025–26)
Consider an individual earning ₹25,000 as FD interest and ₹5,000 as savings account interest during FY 2024–25.
Total interest income = ₹30,000
Deduction under Section 80TTA (for non-senior citizens) = ₹10,000
Net taxable interest = ₹20,000
This ₹20,000 is added to the total income and taxed according to the applicable slab rate. If TDS of ₹2,500 has been deducted by the bank, it can be adjusted while filing ITR. TaxBuddy’s system auto-imports Form 26AS details and calculates the balance payable or refundable amount automatically.
Common Mistakes to Avoid While Reporting Interest Income
Many taxpayers fail to report interest income correctly due to misconceptions. Common mistakes include assuming that TDS deduction means no further tax liability, not reporting interest from all bank accounts, or excluding interest credited but not withdrawn. Another frequent issue is mismatch between interest income reported by the taxpayer and what appears in the AIS or Form 26AS. To avoid these discrepancies, verify every detail before submission. Using platforms like TaxBuddy ensures automatic reconciliation and reduces the chances of receiving mismatch notices under Section 143(1) or 139(9).
Latest Updates and CBDT Notifications for AY 2025–26
The Finance Act 2025 has not introduced any new changes in the taxation of interest income. The TDS thresholds of ₹40,000 for individuals and ₹50,000 for senior citizens remain unchanged. However, the Central Board of Direct Taxes (CBDT) has emphasized improved digital reporting through AIS and has simplified the e-filing process. Recent notifications encourage taxpayers to ensure all bank interest, FD interest, and recurring deposit interest are correctly reported to avoid non-compliance alerts. Updated e-filing systems and platforms like TaxBuddy now automatically capture AIS data, simplifying the entire reporting process.
Why Accurate Interest Reporting Matters
Accurate disclosure of interest income is essential to avoid tax notices, penalties, or interest under Sections 234A, 234B, and 234C. The income tax department cross-verifies AIS and Form 26AS data with the taxpayer’s ITR. Even small mismatches can trigger an intimation or scrutiny notice. Transparent reporting ensures compliance, reduces the risk of audit, and contributes to a clean tax profile. For professionals and salaried individuals, ensuring that every rupee of bank or FD interest is correctly declared helps maintain long-term credibility with the tax authorities.
Conclusion
Reporting interest income from fixed deposits and savings accounts accurately is a key part of responsible tax filing. It helps maintain compliance, avoid scrutiny, and ensures deductions are claimed properly under the correct regime. With automated features that import bank data and reconcile TDS entries, TaxBuddy simplifies this entire process. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy provides flexibility by offering both self-filing and expert-assisted plans. The self-filing plan is ideal for individuals who are confident in handling their own tax return, with AI-driven guidance ensuring accuracy at every step. The expert-assisted plan is designed for those who prefer a professional to review, prepare, and file their ITR. This plan includes personalized support, document verification, and tax optimization, ensuring a completely hassle-free experience.
Q2. Which is the best site to file ITR?
Among the various online filing options, TaxBuddy stands out as one of the most trusted and efficient platforms for ITR filing in India. It combines automation with human expertise, allowing users to upload their Form 16, AIS, or Form 26AS data and get an instant tax summary. The platform’s AI-powered system identifies eligible deductions, detects errors, and ensures an error-free submission directly to the income tax portal.
Q3. Where to file an income tax return?
Income Tax Returns can be filed directly on the official government portal (www.incometax.gov.in) or through reliable third-party platforms like TaxBuddy. Using TaxBuddy simplifies the process — it fetches relevant data automatically from the income tax system, applies all eligible deductions, and provides a detailed computation summary before filing. This makes it a convenient option, especially for salaried individuals, freelancers, and senior citizens who want a guided approach.
Q4. Is FD interest taxable every year or only on maturity?
Interest earned on fixed deposits is taxable each financial year when it accrues, not only at the time of maturity. Even if the amount is not withdrawn, it must still be declared as income in that year’s ITR. Banks report this accrued interest to the Income Tax Department through the Annual Information Statement (AIS), so omitting it can lead to mismatches or scrutiny notices. Therefore, taxpayers should include the yearly accrued FD interest under “Income from Other Sources.”
Q5. Can I claim a deduction on interest from both FD and savings accounts together?
Under the Income Tax Act, deductions differ based on the type of account. Non-senior taxpayers can claim up to ₹10,000 under Section 80TTA for savings account interest, but this section does not cover fixed deposits. Senior citizens, however, can claim a combined deduction of up to ₹50,000 under Section 80TTB for both savings and fixed deposit interest. To benefit, the individual must file under the old tax regime, as these deductions are not available in the new regime.
Q6. What is the TDS rate on FD interest for FY 2024–25?
Banks deduct TDS at 10% when total interest income from all fixed deposits in a financial year exceeds ₹40,000 for regular taxpayers and ₹50,000 for senior citizens. If the depositor’s PAN is not linked with the account, TDS is deducted at 20%. Individuals whose total income is below the taxable limit can submit Form 15G (below 60 years) or Form 15H (for senior citizens) to avoid TDS deduction altogether.
Q7. Can savings account interest exceed ₹10,000 and still qualify for 80TTA deduction?
Yes. The total savings account interest earned during the financial year can exceed ₹10,000, but only the first ₹10,000 qualifies for deduction under Section 80TTA. Any amount above this limit is fully taxable and must be included under “Income from Other Sources” in the ITR. This deduction applies collectively across all savings accounts, including those held in co-operative and post office banks.
Q8. How can senior citizens claim the ₹50,000 deduction under Section 80TTB?
Senior citizens aged 60 years or above can claim a deduction of up to ₹50,000 on total interest income from savings accounts, fixed deposits, or recurring deposits under Section 80TTB. This deduction must be entered in the “Deductions” section of the ITR under Chapter VI-A. To qualify, the deposits should be held with banks, co-operative societies, or post offices. This benefit is available only under the old tax regime and helps reduce taxable income substantially for retirees.
Q9. Should interest from post office deposits also be reported in ITR?
Yes, interest earned from post office savings accounts, recurring deposits, or time deposits must be reported in ITR under “Income from Other Sources.” While certain small savings schemes may offer partial exemptions, most post office interest is taxable. Form 26AS and AIS may also reflect these earnings if reported by the post office. Including them ensures transparency and prevents discrepancies between reported income and system records.
Q10. What if my bank did not deduct TDS on FD interest?
Even if the bank does not deduct TDS, it does not mean the interest income is tax-free. The taxpayer is still responsible for declaring and paying tax on the total interest earned. If the slab rate applicable to the individual is higher than 10%, the difference must be paid as self-assessment or advance tax. Failure to include such income can result in a demand notice from the Income Tax Department during assessment.
Q11. How can AIS and Form 26AS help in verifying interest income?
The Annual Information Statement (AIS) and Form 26AS are official records that list all income sources reported to the Income Tax Department, including interest credited by banks, TDS deducted, and other financial transactions. Taxpayers should cross-verify the interest amounts shown in these forms with their bank statements or certificates. Matching data ensures accuracy and prevents mismatch notices under Section 143(1) or defective return classification under Section 139(9).
Q12. Does TaxBuddy automatically calculate interest income and applicable deductions while filing ITR?
Yes. TaxBuddy’s AI-powered filing system automatically imports data from Form 26AS and AIS, identifies interest income from multiple bank accounts and deposits, and calculates the correct taxable amount. It also applies eligible deductions under Section 80TTA or 80TTB (depending on age and regime) and adjusts for any TDS already deducted by banks. This automation ensures accurate, error-free, and time-efficient tax filing while minimizing the risk of non-compliance.
