The biggest myth about FDs is that the 10% TDS the bank deducts is the final tax. It is not. TDS is just an advance — the real liability is at your income-tax slab. Someone in the 30% slab who relies on TDS alone will end up with a shortfall notice from the department. The cleanest workflow is: declare all FD interest in your ITR every year (not just in the maturity year for cumulative FDs), claim credit for the TDS the bank has already deducted, and pay the slab gap as self-assessment tax before 31 July.
Two relief mechanisms exist. Form 15G (under 60) and Form 15H (60+) tell the bank not to deduct TDS if your total income is below the basic exemption limit — submit them at the start of every financial year. Senior citizens also get an additional ₹50,000 deduction for FD/savings interest under Section 80TTB, which can fully offset the tax on a modest retirement FD portfolio.
Effective post-tax yield by slab on a 7.5% FD
- Below exemption (15G/15H filed)
- 7.50% (no tax)
- 5% slab
- ~7.13%
- 20% slab
- ~6.00%
- 30% slab
- ~5.25%
- Senior, ₹50k 80TTB used
- Effectively zero tax up to ~₹50k interest
A 30%-slab investor earns barely more than a savings account's post-tax yield from a 7.5% FD. That is why post-tax debt funds and tax-free bonds become more attractive at higher slabs.