Splitting FDs Across Multiple Banks to Avoid TDS in 2026: How the Per-Bank Threshold Actually Works

By Nitish Bharadwaj · Published Aug 28, 2026 · 6 min

Section 194A's TDS threshold — ₹50,000 for individuals, ₹1,00,000 for senior citizens from FY 2025-26 — is checked separately at every bank that pays you interest, not on your combined FD holdings. Spreading deposits across multiple banks can legally keep each one under its own threshold, avoiding TDS deduction at source. But the interest stays fully taxable regardless: splitting changes when tax is collected, not whether it's owed, and any liability not covered by TDS still has to be paid as advance tax. This guide covers the mechanics and how it compares to Form 15G/15H.

Book three fixed deposits of ₹10 lakh each in three different banks, and none of them deducts a single rupee of TDS — even though the combined interest can cross ₹1.2 lakh a year. That isn't a workaround banks have overlooked; it's how Section 194A is written. The ₹50,000 TDS threshold is checked separately at every bank, not summed across your total FD holdings. Here's exactly how the per-bank rule works, why it changes nothing about the tax you actually owe, and the one other reason it's worth doing anyway.

The Threshold Is Checked Per Bank — Not on Your Combined FD Interest

Section 194A requires a bank, cooperative bank, or post office to deduct TDS once the interest it pays you in a financial year crosses a set threshold — ₹50,000 for individuals under 60, and ₹1,00,000 for senior citizens, both raised from ₹40,000 and ₹50,000 respectively effective FY 2025-26. Crucially, that threshold is applied by each deductor separately. A bank aggregates the interest it pays you across all its own branches under your PAN, but it has no way of knowing, and no obligation to check, what another bank is paying you on a separate FD. The result: hold ₹9 lakh in one bank's FD earning ₹45,000 interest, and another ₹9 lakh in a different bank earning another ₹45,000, and neither bank crosses its own ₹50,000 threshold — even though your combined interest for the year is ₹90,000.

Why This Avoids Deduction, Not the Tax Itself

Banks also report the interest they pay to the tax department each year independent of whether TDS was applied, and this shows up in your Form 26AS or Annual Information Statement regardless of the deduction. Splitting FDs manages when tax is withheld — it changes nothing about what the department can see or what you're required to report. Treat it purely as a cash-flow decision, not a way to reduce your actual liability.

Splitting vs Form 15G/15H — Two Tools for Two Different Taxpayers

These two routes solve different problems, and conflating them is the most common mistake. Form 15G or 15H is the right tool if your total income for the year genuinely falls below the basic exemption limit — filing it truthfully at each bank stops TDS at source because no tax is actually due in the first place. Splitting FDs across banks is a different tool for a different taxpayer: someone whose income is taxable, who can't file 15G/15H honestly, but wants to avoid having tax withheld upfront and then wait months for a refund after filing. It's a timing choice for someone with real tax liability, not a way to make interest tax-free.

The Other Reason to Split: DICGC Cover

There's a second, unrelated reason spreading FDs across banks makes sense even for someone entirely comfortable with TDS: DICGC deposit insurance covers only ₹5 lakh per depositor per bank — principal plus interest combined — not per FD. A ₹20 lakh FD sitting entirely in one bank leaves ₹15 lakh of it outside deposit insurance if that bank were ever to fail. Spreading the same ₹20 lakh across three or four banks keeps each bank's exposure within the insured limit, and, as a side effect, often keeps each bank's interest under the TDS threshold too.

A Worked Example

Consider someone in the 30% tax bracket sitting on ₹30 lakh they want in FDs. Parked entirely in one bank at 7% for a year, that generates ₹2.1 lakh interest — comfortably crossing the ₹50,000 threshold and triggering a flat 10% TDS of ₹21,000 deducted upfront, while the actual tax owed at 30% plus cess is closer to ₹65,520. The roughly ₹44,500 gap between TDS deducted and actual liability still has to be paid as advance tax through the year regardless of the deduction. Split the same ₹30 lakh across four banks at ₹7.5 lakh each, and each bank's interest comes to roughly ₹52,500 — just over the threshold, so TDS still applies, just on a smaller base each time. Spreading it across five or six banks instead brings every bank under ₹50,000, and TDS stops being deducted anywhere — but the full ₹2.1 lakh remains taxable, with the entire ~₹65,520 now payable directly as advance tax rather than arriving pre-collected.

How to Actually Do This

• Estimate your total expected FD interest for the year, then divide it across enough banks to keep each one under ₹50,000 (or ₹1 lakh for seniors)
• Prioritise DICGC-insured banks and small finance banks for each split, not NBFCs, which carry no deposit insurance regardless of TDS treatment — see our FD marketplace apps guide for the DICGC distinction across issuer types
• Pay advance tax on the full expected interest by the quarterly due dates if no bank is withholding it, to avoid interest under Sections 234B and 234C
• Keep a simple running note of interest booked at each bank through the year, since no single statement aggregates it for you until Form 26AS updates after the financial year closes

Bottom Line

Splitting fixed deposits across banks legally avoids TDS being deducted at source, because Section 194A's threshold resets at every deductor — but it's a cash-flow tool, not a tax-saving one. The interest stays fully taxable either way, and the real benefit is avoiding the wait for a refund on tax you'd have paid anyway, plus the incidental gain of spreading DICGC cover across more institutions. If your income is genuinely below the taxable limit, Form 15G/15H remains the simpler, more direct route to the same TDS-free outcome.