3 weeks ago
FD and KVP tax rules: TDS, taxable interest, key differences
When you keep money in a bank fixed deposit (FD) or buy a special savings certificate called Kisan Vikas Patra (KVP), the government says you have to pay tax on the extra money you earn from it.
This is still true under the new Income Tax Act 2025, which starts on 1 April 2026.
For fixed deposits, the bank takes a small part of your interest and sends it to the government in advance.
This is called TDS, which stands for tax deducted at source.
It happens once your interest crosses a certain limit set by the rules.
Even if you do not receive the interest and let it build up in the deposit, the bank can still deduct tax on it.
For KVP, no tax is taken in advance by anyone.
But that does not mean the interest is tax-free.
You still have to tell the government about this interest when you file your tax return, and the final tax you pay depends on how much money you earn overall.
Interest earned on fixed deposits (FDs) and Kisan Vikas Patra (KVP) is taxable under 'Income from Other Sources' at the taxpayer's applicable slab rates.
The Income Tax Act 2025, applicable from 1 April 2026, continues to treat FD and KVP interest as taxable income.
Under Section 393 of the Income Tax Act 2025, banks must deduct TDS on FD interest once prescribed thresholds are crossed, including on cumulative FDs' accrued interest.
KVP interest is not subject to TDS but remains fully taxable and must be disclosed in the income tax return (ITR).
TDS is only an advance method of tax collection and does not determine final tax liability, which depends on an individual's total income and tax slab.
- Who
- Indian taxpayers investing in fixed deposits (FDs) and Kisan Vikas Patra (KVP), including experts at Navraj Global Advisors.
- What
- Explanation of tax rules under the Income Tax Act 2025: FD interest is subject to TDS under Section 393, while KVP interest faces no TDS but is fully taxable.
- Where
- India, where the Income Tax Act 2025 and income tax return (ITR) filing rules apply.
- When
- Under the Income Tax Act 2025, which is applicable from 1 April 2026.
- Why
- To help investors understand tax and TDS implications for FD and KVP interest so they can report income correctly and avoid filing errors.
Key facts
- Applicable law
- Income Tax Act 2025, effective from 1 April 2026
- FD TDS provision
- Section 393 of the Income Tax Act 2025
- TDS on FD interest
- Deducted by banks once prescribed thresholds are crossed, including on cumulative FDs' accrued interest
- TDS on KVP interest
- Not subject to TDS
- KVP taxation
- Fully taxable; must be disclosed in the income tax return
- Tax head
- Income from Other Sources
- Tax rate
- Chargeable at the taxpayer's applicable slab rates
- Nature of TDS
- Advance collection method; does not determine final tax liability
Quotes
Nishant Shanker
Tax Controversy & Dispute Resolution specialist at Navraj Global Advisors
“Interest earned on FDs and Kisan Vikas Patra (KVP) is taxable under the head 'Income from Other Sources' and is chargeable at the taxpayer's applicable slab rates.”
livemint.com
Sources
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