How FD Interest Is Taxed: Old Regime vs New Regime

Keeping in mind the easy-to-understand structure of a fixed deposit, it is obvious that you expect the tax on the interest earned to be simple. You earn it, you pay tax on it, and you're done. In practice, however, things are a little different.

The tax regime that you've picked changes what you can deduct. Though keep in mind that the interest itself is fully taxable either way. Here's what actually changes between the two, and what doesn't.

The Basic Rule: FD Interest is Taxed on Accrual, Not on Withdrawal

A common misconception is that FD interest only becomes taxable once the deposit matures or the interest is actually paid out. That's not how it works. Interest is taxed on an accrual basis. This means whatever interest builds up in a given financial year has to be reported as income for that year, whether you've withdrawn it, let it compound, or haven't touched the deposit at all. This holds true regardless of which tax regime you're filing under. A cumulative FD doesn't defer the tax bill just because the interest isn't paid out until maturity.

The interest itself is taxed under "Income from Other Sources," added to your total income, and taxed at your applicable slab rate. There's no special flat rate for FD interest under either regime.

Learn more about fixed deposits and their benefits with JioFinance.

TDS on FD Interest: The Same Withholding Rule Either Way

NBFCs and Banks deduct 10% TDS under Section 194A once you earn FD interest over ₹50,000 in a financial year (₹1,00,000 for resident senior citizens). Without a PAN on file, that rate jumps to 20%. This TDS deduction applies identically whether you've opted for the old regime or the new one. It is simply an advance collection against your final tax liability, not the final tax itself, and you'll need to reconcile it when filing your ITR either way.

If your total income is genuinely below the taxable threshold, submitting Form 121 of the Income Tax Act 2025 (Earlier known as Form 15G (under 60) or Form 15H (60 and above)) can prevent TDS from being deducted in the first place. It is a unified self-declaration form intended to eventually replace the separate 15G/15H structure. Check the current applicable form each year, rather than assuming last year's version still applies.

What the Old Regime Offers That the New Regime Doesn't

This is where the two regimes diverge, not in how interest is taxed, but in what you're allowed to deduct before arriving at your final tax bill.

With effect from April 1, 2026, the Income Tax Act, 1961 has been replaced with the Income Tax Act, 2025. Section 80C has been renumbered as Section 123, to streamline deductions.

Section 80TTB

Section 80TTB, available only under the old regime, lets resident senior citizens claim a deduction of up to ₹50,000 on interest income from banks, post offices, cooperative banks, and FD interest.

Earlier Section 80C

Section 80C, also old-regime-only, allows a deduction of up to ₹1.5 lakh on the principal invested in a 5-year tax-saving FD. Importantly, this deduction applies only to the principal. The interest earned on a tax-saving FD is taxed exactly like interest on any regular FD, with no special exemption.

Section 80TTA

Section 80TTA, relevant mainly for savings account interest rather than FD interest specifically, offers non-senior taxpayers a deduction of up to ₹10,000. But this doesn't extend to FD interest, a distinction that's easy to miss.

The new regime removes all of these deductions entirely. In exchange, it offers wider tax slabs and, following recent changes, a Section 87A rebate that makes total income up to ₹12 lakh effectively tax-free for many taxpayers. However, this rebate depends on your total income profile, not FD interest in isolation, and doesn't function as an FD-specific benefit.

Old vs New Regime: FD Interest Taxation at a Glance

Here's a quick insight into the taxation on fixed deposits in the old and the new regime.

Tip: With JioFinance, file your income tax returns without any hassle and with accuracy.

Which Regime Actually Works Better for FD Holders?

There's no universal answer. It depends on how much you're relying on deductions elsewhere in your return, not just on FD interest alone. If you're a senior citizen claiming Section 80TTB, or investing meaningfully in a 5-year tax-saving FD for the Section 80C benefit, the old regime's deductions can genuinely lower your effective tax on FD interest, even though the interest itself is taxed at slab rates either way.

If your overall deductions are minimal and your total income sits comfortably within the new regime's wider slabs and higher rebate threshold, the new regime often works out simpler and, in many cases, cheaper overall. This is a decision worth revisiting each year based on your full income picture, rather than a one-time choice made in isolation.

Tracking FD Interest and Tax Details Through JioFinance

Since FD interest needs to be tracked and reported annually regardless of regime. Keeping a clear record of interest accrued across multiple deposits, especially if they're spread across different issuers, makes filing considerably less stressful. FDs booked through JioFinance appear together in the "My Money" dashboard, making it easier to see accrued interest across your holdings in one place rather than piecing together certificates from several issuers separately.

Before investing in a new FD, JioFinance's comparison feature also lets you check current rates across issuers. It is worth doing alongside your regime decision, since the post-tax return on the same headline rate can differ depending on which regime and deductions actually apply to you.

Conclusion

FD interest is taxed the same fundamental way under both regimes, added to your income and taxed at your slab rate, with TDS applying either way identically. What genuinely changes is your ability to claim deductions like Section 80C and 80TTB, available only under the old regime, against the new regime's wider slabs and higher rebate threshold. Comparing your full income picture under both regimes, rather than assuming one is universally better, is what actually determines your effective tax on FD interest.