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RBI FD Rules And Regulations

Published On Feb 23, 2022

Term Deposits, also known as Fixed Deposits (FDs), are the most common instruments of saving and investment for the masses in general. A fixed deposit comes with a predefined rate of return (interest) and maturity period. Apart from savings, they offer numerous additional benefits. Investors can earn interest on a monthly, quarterly, semi-annual and annual basis, as per their convenience. The investment horizon ranges between 7 days to 10 years. All banks offer the facility to open FDs from the bank branch, online as well as through mobile/phone banking applications. Also, tax saving FDs qualify for tax deductions under Section 80C of the Income Tax Act, 1961.

RBI FD Rules And Regulations

Fixed Deposit Rules You Must Know

Here are a few important rules & regulations regarding Fixed Deposits:

1. Tax Deducted at Source on Fixed Deposit

TDS is deducted by the bank on your deposit at the time the interest is credited to your account and not at time of maturity. A TDS of 10% is applicable if the FD interest amount exceeds Rs. 10,000 (this limit has been hiked to Rs. 40,000 for individuals and Rs. 50,000 for Senior Citizens in the interim budget for 2019). In case the Permanent Account Number (PAN) is not provided to the bank, a TDS of 20% will be charged. There is nil TDS applicable on Post Office Term Deposits (POTD).

2. Taxation on FD Interest

The interest earned on Fixed Deposits is fully taxable. It is determined as per your tax slab bracket along with surcharge/cess. For example, if you file an ITR of upto Rs. 10 lakhs, the amount of interest earned by your FD will form a part of your taxable income of Rs. 10 lakhs and taxed as per the applicable tax rate.

3. Tax Exemption for Senior Citizens

There is nil TDS applicable on the FD interest of senior citizens, provided the interest amount does not exceed Rs. 50,000 in a financial year.

4. Tax Benefit for Senior Citizens

Senior citizens are eligible for a tax deduction of up to Rs. 50,000 on the interest income earned from fixed deposits (as per Section 80 TTB).

5. Tax Benefit

Only tax saver FDs qualify for a tax deduction of invested amount of up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act, 1961.

6. Deposit Insurance

This is a protection cover that you get on your deposits in banks. This facility is provided by Deposit Insurance and Credit Guarantee Corporation, a subsidiary of the Reserve Bank of India (RBI). The DICGC ensures that each depositor in a bank is insured up to a maximum of Rs. 1 lakh for both principal and interest amount.

7. Loan Facility

All banks provide this particular feature. An individual can take a loan of up to 90% of their FD amount/principal amount. The bank charges one percent higher interest than the interest earned on fixed deposits.

8. Clubbing of FD interest

Banks aggregate interest income on all FDs across its various branches. This method enables banks to check if the interest income for the year is more than Rs 40,000/50,000 or not. The same applies for Recurring Deposits (RDs).

9. Interest Payment

If you earn interest at the end of tenure on a cumulative basis, you are required to declare the interest income every year, as your bank may be deducting TDS (if applicable) and depositing under your PAN.


The notice also mentions that the new rules are applicable to all scheduled commercial banks (including RRBs), small finance banks, local area banks, and all co-operative banks.

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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.


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