Difference between tax free and NO TDS on Deposit
No TDs doesn't mean Deposit is tax free. No TDS merely means the bank will pay the entire interest amount without forwarding tax on it to the goverenment. However fixed depoit holder will have to include this interest on his/her total income and pay tax according to his/her tax bracket.
Correct, TDS is not deductible does not mean income is not taxable. Income is always taxable unless exempted by income tax act and rules.
However, interest on SB account is exempted upto 10,000.
Even in other transactions such as contract income, Tax is deducted at 1% or 2% but that does not mean income from contract business is taxable at 1%.
For a layman, understanding income tax act is quite difficult. You have to understand that intention of any government is to always collect as much tax as possible.
Government will exempt income only if by exemption some benefits are achieved. For example exemption of service tax on export of services, increases the foreign inwards.