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Interruptions Vs Distractions 

Lot of times our productivity goes down due to interruptions and distractions.

Understand difference between interruption and distraction.
Interruption is smaller in duration. It will not take away your focus from the main task. It is easier to get back to your main task.
Examples of interruptions: Phone call, Someone dropping by your office to check on status or ask for clarification.
If you are working on a report when either of these interruptions, you will be able to get back to completing the report.
Distraction is bigger in duration. It will take away your focus from the main task you are working. It may need your immediate attention. It will be difficult to get back to main task. It will take considerable energy and effort to recover from a distraction.
Examples of distraction: You are working on a report and someone asks you to join a meeting or discussion that needs your presence. You need to leave whatever you are doing and get into the meeting. 
Handling Interruptions
An interruption has a tendency to become a distraction. It depends on your discipline whether you allow an interruption to become a distraction.
Some one comes to your cube asking for a clarification. You take the hint for clarification and immediately get into a long discussion or meeting.
You received a phone call and you get into a prolonged discussion.
By setting limits to interruptions, you can avoid this situation.
When someone comes for a clarification and you think this needs a longer discussion, tell the person that you will stop by at a later point of time and you get back to your main task assuming whatever you are doing takes higher priority. 
 
Next time you are interrupted and it is likely to become a distraction, use your judgment and prevent unnecessary distractions.

Simply put, if you are traveling in a car, a signal is an interruption. If you are forced to take a detour/diversion, it is distraction. It will take a long time to get back on main route.