Fixed deposits are among India's most popular investment options, offering assured returns and safe parking for conservative investors. However, the interest earned on FDs is fully taxable and must be declared in income tax returns under 'Income from Other Sources'. According to reports from Mint, this income is taxed at the taxpayer's applicable slab rate regardless of whether TDS has been deducted by the bank.
Taxpayers who missed declaring FD interest in their ITR for FY 2024-25 can still rectify the omission through an updated return (ITR-U). As reported by Mint, ITR-U can be filed between 1st April 2026 to 31st March 2030 for FY 2024-25. The form allows correction of errors or omissions within four years from the end of the relevant assessment year, covering preceding 4 assessment years (48 months).
The additional tax liability for filing ITR-U depends on the time elapsed since the assessment year end. According to Mint reports, if filed within 12 months, taxpayers must pay an additional 25% of aggregate tax and interest due. Filing between 12-24 months increases the penalty to 50%, while 24-36 months requires 60% additional tax. For filings between 36-48 months, the penalty rises to 70% of tax and interest payable.
Failure to declare FD income can result in automatic detection through Annual Information Statement (AIS) data, which can trigger income tax department notices. As reported by Mint, if the assessing officer determines intentional under-reporting or misreporting to evade taxes, penalties of 50% to 200% of the tax sought to be evaded can be imposed under Section 270A of the Income Tax Act. Taxpayers can file only one updated return for each assessment year.
