TDS on FD: Does Splitting Across Banks Actually Beat Submitting Form 15G

Here is the uncomfortable truth almost every “how to avoid TDS on FD” article skips: for a taxpayer, avoiding TDS saves exactly zero rupees of tax. TDS is not a tax. It is a withholding, an advance instalment of a bill you owe anyway. Splitting a Rs 30 lakh corpus across five banks to keep each one under the threshold is a lot of running around to defer nothing.

And yet the “split your FDs across banks” advice gets repeated every year like a life hack. Let me actually model it. Take a Rs 30 lakh FD corpus at 7%, throwing off Rs 2,10,000 of interest a year, and run three strategies side by side:

1. Split the corpus across enough banks to keep each one’s interest under the TDS threshold.
2. Submit Form 15G / 15H at a single bank so no TDS is deducted.
3. Consolidate at one bank, let TDS happen, and settle the balance (or claim the refund) in your ITR.

The winner is not the same for everyone, but it is never the one everyone recommends.

First, the thresholds actually changed

Most articles you will find still quote Rs 40,000 (Rs 50,000 for senior citizens). Those numbers are stale. Budget 2025 raised the Section 194A TDS thresholds on bank FD interest with effect from FY 2025-26:

A few mechanics worth nailing down before the math:

• The threshold is per bank, not per branch and not per FD. Core banking aggregates all your FDs in one bank, so opening three FDs at the same bank does nothing.
• Once your interest crosses the threshold, TDS at 10% applies to the whole interest, not just the excess (20% if you have not seeded your PAN).
• TDS is deducted on accrued interest each financial year, even on a cumulative FD you have not touched.
• Crossing the threshold does not change how much tax you owe. It only changes whether the bank pre-collects a slice of it.

Strategy 1: how many banks does splitting actually need?

To keep a bank’s annual interest under the threshold at a 7% FD rate, the most you can park there is:

Non-senior:  Rs 50,000 / 0.07  = Rs 7.14 lakh per bank
Senior:      Rs 1,00,000 / 0.07 = Rs 14.28 lakh per bank

So for a Rs 30 lakh corpus:

Five banks is not a hack. It is five KYC processes, five net-banking logins with five sets of credentials, five nomination forms, five maturity dates to track, and five Form 26AS / AIS entries to reconcile at filing time. If a rate changes or an FD matures, you are managing renewals in five places. The senior citizen gets off lighter at three banks, but the principle holds: you are buying paperwork.

And here is the part the life-hack version never states: splitting does not reduce your tax by a single rupee. It only stops the bank from withholding an instalment of it.

What you actually owe, by bracket

The interest of Rs 2,10,000 is added to your income and taxed at your slab. That number does not care how many banks it came from.

If you consolidate at one bank, the bank withholds TDS of 10% on the full interest:

TDS withheld = 10% x 2,10,000 = Rs 21,000

That Rs 21,000 is not a cost. It is a credit sitting against your final bill. Keep it in mind as we compare.

The three strategies, side by side

Same Rs 30 lakh, same Rs 2,10,000 interest, same 7% rate. Only the strategy changes.

Zero-tax bracket (interest is your main income, or income within the new-regime rebate)

All three cost you zero tax. But look at the effort and the cash flow. Splitting gets you to zero TDS across five banks. Form 15G gets you to the identical zero TDS at one bank with a single form. The consolidate route works too, but you hand the government Rs 21,000 and wait months to get it back.

That refund lag has a real, if small, cost. If the refund lands roughly six months after year-end, the opportunity cost at 7% is about 21,000 x 3.5% = Rs 735, plus the annoyance of chasing it. So for the zero-tax investor, the ranking is clear: Form 15G / 15H at one bank wins, splitting is a strictly worse way to reach the same zero-TDS outcome, and consolidating needlessly parks your cash with the tax department.

One caveat on eligibility: Form 15G (under 60) and 15H (60+) are only for people whose total tax liability is genuinely nil and whose total interest is within the basic exemption limit (Rs 4 lakh under the new regime for FY 2025-26). A false 15G is prosecutable under Section 277. If you are a taxpayer, this route is simply closed to you, which brings us to the brackets that matter for most readers.

20% bracket

Form 15G is off the table, so the real contest is split versus consolidate.

The tax owed is Rs 43,680 either way. Splitting changed nothing about the bill. What it changed is who is holding the money and when the shortfall gets flagged.

When you split and dodge TDS, nobody pre-pays anything toward that Rs 43,680. You are now responsible for paying it yourself as advance tax during the year. If your total tax due (after TDS) is Rs 10,000 or more and you underpay, Sections 234B and 234C charge 1% per month on the shortfall. Consolidating and letting the Rs 21,000 TDS run does the opposite: that TDS counts as advance tax already paid, shrinking your advance-tax obligation and your interest exposure.

So in the 20% bracket, splitting across five banks buys you more paperwork and more advance-tax risk, in exchange for zero tax saved. Consolidation wins.

30% bracket

Same story, larger numbers. The bill is Rs 65,520 no matter what. The TDS of Rs 21,000 is a helpful pre-payment, not a leak. To avoid 234B interest you need at least 90% of your assessed tax paid through the year. With TDS running, Rs 21,000 of that is handled automatically. Split it away and you must self-fund the entire 65,520 x 90% = Rs 58,968 through advance-tax instalments, or eat 1% a month on the gap.

The 30% investor gains the least from dodging TDS and risks the most from the resulting advance-tax shortfall. Consolidate, keep one Form 16A, one Form 26AS line, and settle the balance.

Putting a rupee figure on the “splitting hurts” claim

The advance-tax risk is easy to wave away as theoretical, so let me make it concrete for the 30% investor whose only other income is a salary where TDS is already fully handled by the employer.

The FD interest of Rs 2,10,000 adds Rs 65,520 of tax that the salary TDS did not cover. Assume you realise this only at filing time (a common mistake, because the interest is not in your salary slip).

Tax on FD interest             = Rs 65,520
Case A - you split, zero TDS collected:
  Advance tax paid on it       = Rs 0
  90% threshold to dodge 234B  = Rs 58,968 (unpaid)
  234B interest, ~5 months at 1%/month on shortfall
                               = 65,520 x 1% x 5 = Rs 3,276
  234C interest on deferred instalments (approx)
                               = Rs 1,500 to Rs 2,000

Case B - you consolidate, Rs 21,000 TDS runs:
  Advance tax credited via TDS = Rs 21,000
  Remaining self-pay to hit 90% is smaller, and if you
  top up even one instalment, 234B/234C interest often
  falls to near zero.

So splitting to “save” the Rs 21,000 withholding can quietly cost you Rs 4,000 to Rs 5,000 in 234B/234C interest, on top of five bank relationships. You paid to make your position worse. This is the entire case against splitting in one number.

If you insist on holding zero-TDS FDs as a taxpayer, the fix is not to shrug: pay the FD tax yourself as advance tax in the June, September, December and March instalments. But at that point you are doing more work than simply letting the bank withhold, for no benefit.

Three mistakes that quietly cost people money

• Assuming no TDS means no tax. The most expensive error. Your interest shows up in your AIS whether or not TDS was cut. If you skip it in your ITR, you get a mismatch notice; if you skip the tax, you owe it with interest.
• Submitting Form 15G while actually being a taxpayer. People do this to stop TDS on a chunk of FD interest, forgetting that it is a legal declaration that their total tax is nil. If you have salary income in the 20% or 30% slab, you do not qualify, full stop.
• Forgetting to renew 15G / 15H every April. The declaration is valid for one financial year. Banks reset in April. A senior citizen who submitted 15H last year and assumes it carries over often finds TDS deducted the next year, then has to chase the refund anyway.

A quick note for senior citizens: beyond the higher Rs 1,00,000 threshold, Section 80TTB lets you deduct up to Rs 50,000 of interest income from your taxable total. Combined with the Rs 4 lakh basic exemption, a senior whose Rs 30 lakh FD interest is their main income often has genuinely nil tax, which makes Form 15H the honest and correct route rather than a stretch.

Why “avoid TDS” became bad advice

The instinct to dodge TDS made sense in a world where getting a refund was slow and painful and where the threshold was low enough to trip easily. Three things have quietly killed the logic:

• Higher thresholds. At Rs 50,000 (Rs 1,00,000 for seniors), a modest FD holder may not trip TDS at all without doing anything clever.
• TDS is just advance tax. For anyone who owes tax, avoiding the withholding does not reduce the bill; it just shifts the payment from the bank to you, and adds 234B/234C risk if you forget.
• AIS and pre-filled returns. Your interest and TDS now show up in the Annual Information Statement and pre-filled ITR. Splitting across five banks does not hide anything; it just gives you five entries to reconcile.

Splitting only ever produced one benefit, avoiding the withholding, and that benefit is worth something to exactly one type of person: the zero-tax investor who would otherwise wait for a refund. And that person has a one-form shortcut called 15G that beats splitting outright.

The one edge case where a second bank helps

There is a narrow, non-tax reason to spread FDs: DICGC deposit insurance covers only Rs 5 lakh per bank (principal plus interest). A Rs 30 lakh corpus at one bank is Rs 25 lakh uninsured. If safety of a large sum is the concern, spreading across banks is legitimate, but that is a credit-risk decision, not a TDS decision, and stopping at three or four large, well-rated banks is plenty. Do not confuse the two motives. If you split for insurance, fine; just do not pretend it is saving you tax.

Bottom line

For a Rs 30 lakh FD corpus, the “split across banks to avoid TDS” advice is almost always the wrong answer:

• Zero-tax bracket: submit Form 15G (under 60) or 15H (60+) at one bank. Same zero TDS as splitting, one form instead of five, and no refund to chase. Only do this if your tax liability is genuinely nil; a false declaration is a prosecutable offence.
• 20% and 30% brackets: consolidate at one bank and let TDS run. You cannot legally file 15G, splitting saves you nothing, and the TDS actually helps by pre-paying part of your bill and cutting Section 234B/234C interest risk. Pay the balance at ITR.
• Splitting for tax reasons: basically never wins. It defers a withholding, not the tax, and costs you four extra bank relationships to do it.
• Splitting for DICGC insurance: a valid, separate reason to use two or three banks, but keep it about deposit safety, not TDS.

The rule of thumb “keep each FD under the threshold” optimises the one number that does not matter (TDS withheld) while ignoring the two that do (tax actually owed and paperwork). Pick your strategy off your tax bracket, not off the withholding.

Figures here are illustrative, use a representative 7% FD rate and FY 2026-27 rules, and are not investment advice. Confirm current thresholds and your own tax position before acting.