Underpitch — OverdeliverGet Clarity
Investment Knowledge / Fixed Income / Bank Fixed Deposits
Fixed income guide · tax reviewed 7 September 2026

Bank Fixed Deposits

Lock money with a bank for a chosen tenure and receive a contracted interest rate.

Return: Fixed / contractedRisk: Bank credit + deposit limitsLiquidity: Premature exit usually available with conditions
← All fixed-income sections

What it is

A bank fixed deposit is a deposit contract. You place money with a bank for a chosen tenure; the bank pays interest at the agreed rate and repays principal at maturity. Interest may be paid periodically or compounded and paid at maturity.

IssuerScheduled / eligible bank
ReturnFixed or floating deposit rate
Typical useCapital stability + known maturity
LiquidityPremature withdrawal subject to bank terms

What can go wrong

  • Deposit insurance is not unlimited. DICGC covers eligible bank deposits up to ₹5 lakh per depositor per bank in the same right and capacity, including principal and interest.
  • A long lock-in can create reinvestment or opportunity-cost risk if market rates rise.
  • Premature closure can reduce the effective interest rate and may attract a penalty under bank terms.

Tax in India

  • FD interest is generally included in normal taxable income and taxed at the slab rate applicable to the investor.
  • A 5-year tax-saving bank FD may qualify for a deduction only under a tax regime that permits the relevant deduction; the interest itself is not tax-free.
  • Banks may deduct TDS when the applicable statutory conditions are met. TDS is credit against final tax, not a separate final rate.

What the example below measures

The example below focuses on the tax increase caused by this instrument’s return for people starting with ₹6 lakh, ₹12 lakh or ₹50 lakh of normal taxable income. It does not treat TDS as final tax.

FD tax: what happens to a ₹6L, ₹12L or ₹50L income person?

This is an instrument-specific illustration, not the same generic tax chart repeated on every page.

FY 2026-27 · Default new regime
Example used on this page: Assume ₹5,00,000 in a bank FD at an illustrative 7.5% for one year → ₹37,500 interest. Existing income below means normal taxable income before this investment return is added. Assumes a resident individual, no special-rate income, and includes 4% Health & Education Cess.
Existing taxable income before FD return

₹6,00,000

After adding return: ₹6,37,500
Increase in annual tax: ≈ ₹0

Income becomes ₹6,37,500. Because normal-rate total income is still within ₹12 lakh, the available resident-individual rebate can keep final tax at nil in this simplified example.

Existing taxable income before FD return

₹12,00,000

After adding return: ₹12,37,500
Increase in annual tax: ≈ ₹39,000

Income becomes ₹12,37,500. ₹12 lakh is exactly the rebate cut-off. Marginal relief limits the sudden tax jump; 4% cess is then added. This is a threshold effect, not a normal 104% tax rate.

Existing taxable income before FD return

₹50,00,000

After adding return: ₹50,37,500
Increase in annual tax: ≈ ₹39,000

Income becomes ₹50,37,500. ₹50 lakh is exactly the surcharge threshold. Marginal relief reduces the surcharge jump just above ₹50 lakh; 4% cess is then added.

Why the ₹12L and ₹50L examples can look surprising: both people start exactly on a tax boundary before the FD return is added. At ₹12 lakh, the 87A rebate boundary is crossed; at ₹50 lakh, the surcharge boundary is crossed. Marginal relief softens each jump, but 4% cess still applies. A person whose total income is comfortably inside a slab will normally see a much more familiar marginal tax effect. These cards are designed around your exact “₹6L / ₹12L / ₹50L income person then invests” question.
Bank-FD interest is normal taxable income. For bank/post-office time deposits, current TDS thresholds are generally ₹50,000 for a non-senior resident and ₹1,00,000 for a resident senior citizen, subject to the statutory conditions. Even if no TDS is deducted, taxable interest must still be considered in the return.

Tax & bond words — explained simply

No jargon without meaning. These are the terms used on this FD page.

InterestMoney the bank pays you for keeping your deposit with it.
Slab rateThe percentage of tax that applies to the next part of your normal taxable income.
TDSTax Deducted at Source. The bank may deduct tax before paying/crediting interest. TDS is only a credit against your final tax, not a separate final tax rate.
RebateA reduction from income tax. Under the default new regime, a qualifying resident individual can get up to ₹60,000 rebate when total income does not exceed ₹12 lakh.
CessHealth & Education Cess: 4% charged on income tax plus surcharge, if any.
SurchargeExtra tax on the income-tax amount for high total income. Under the new regime, it starts only when total income exceeds ₹50 lakh; marginal relief can soften the jump just above the threshold.

Official references

Use the current issuer document and current law before investing. These links are starting points for verification.

DICGC — Deposit insurance FAQs↗Income Tax Department — current tax law↗

Educational illustration, not tax or investment advice. Tax depends on residential status, tax regime, age, deductions, special-rate income, acquisition price, holding period, listing status and changes in law. “Fixed income” does not mean every instrument is guaranteed or liquid.

Compare return after tax, not only the headline rate.

Underpitch can help you compare tenure, credit quality, liquidity and post-tax yield before you invest.

Request a Clarity Call