No tax deduction will be made from the Pensioner's Interest taken from the Bank or Post Office vide CBDT Notification No.F.2/14/89-NS-II Dated 7/6/1989

Under Section 10(15)(iv)(i) of the Act, interest payable by the Government on deposits
made by an employee of the Central Government or a State Government or a public sector
company out of his retirement benefits, in accordance with such scheme framed in this
behalf by the Central Government and notified in the Official Gazette is exempt from
income-tax. By notification No.F.2/14/89-NS-II dated 7.6.89, as amended by notification
No.F.2/14/89-NS-II dated 12.10.89, the Central Government has notified a scheme called
Deposit Scheme for Retiring Government Employees, 1989 for the purpose of the said
clause.