If you are looking for a way to invest small amounts every month as opposed to investing a lump sum amount at once, recurring deposits are your answer. Recurring deposits are term deposits that let you deposit a sum of money every month for a fixed period of time, giving you interest rates that are similar to what you earn on fixed deposits.
To open a recurring deposit account with any bank, you need to have a savings account with the bank whose recurring deposit scheme you have chosen. You can deposit the money in your savings account, which will be deducted every month by the bank and transferred to the recurring deposit account
TDS on Recurring Deposit
Similar to most personal savings instruments and fixed deposit, recurring deposits to, attract tax. However, recurring deposits attract TDS, better known as Tax Deducted at Source. TDS is also known as the income tax which is applicable for Indian citizens, under The Income Tax Act of 1961. These laws stay the same, except minor amendments and adjustments in the taxation slab.
Income Tax on Recurring Deposit Amount
The money that is invested in a recurring deposit every year, will be counted as a part of the yearly income of the investor. A TDS (Tax Deducted at Source) of 10 percent is deducted on the interest you earn on your recurring deposit. The TDS is not deducted if the interest you earn on your recurring deposit is up to Rs.10,000. The TDS will be 20 percent, if you fail to provide the PAN information to the bank.
If their income falls under the non-taxable income slab, they still have to submit the Form 15G to be taxed for both fixed and recurring deposits.
Form 15G Form 15H and Form 16A
Form 15G is a must if you want to save taxation on your income. However, From 16A is a form that is filled and provided to you by your employer, who deducts the TDS from your income. Note, that regardless of being eligible for TDS on your income, you will be provided with the Form 16A. Also, keep it in mind that the Form 15G is applicable for people who are under 60 years of age. Form 15H is a similar form for ITR submission, like Form 15G, but is only meant for people who are 60 years and over (senior citizens).
Current Income Taxation Slab 2017-18: Resident Individual Below The Age of 60 Years
To get you knowing whether you need to furnish the Form 15G and submit it for your income tax, checkout the income taxation slab below:
|Annual Income (in Indian Rupees)||Tax Rate||TDS on Recurring Deposit Interest Earned (if interest is more than Rs.10,000)|
|Less than Rs. 2.50 lakhs||Not Applicable||10%|
|Between Rs.2.5 lakhs and Rs.5 lakhs||5% of sum exceeding Rs.2.5 lakhs||10%|
|Between Rs.5 lakhs and Rs.10 lakhs||20% of sum exceeding Rs.5 lakhs||10%|
|Over Rs. 10 lakhs||30% of sum exceeding Rs.10 lakhs||10%|
* As of April, 2017
10% of income tax, where total income is between Rs. 50 lakhs and Rs.1 crore.
15% of income tax, where total income exceeds Rs. 1 crore.
Recurring Deposit Tax Exemption
There are certain instruments that are categorized as recurring deposit with income tax exemption, although rare. People do look for tax saving recurring deposits to make sure that their savings are not wasted. Unfortunately, very restricted amount of information is available on recurring deposit interest is taxable or not.
Tax Exemption on Post Office Recurring Deposit Scheme
Tax exemption for your recurring deposit is only possible if you invest in RD with India Post. It should also be at least a 5-year scheme. This is possible under Section 80C of the Income Tax Act of 1961. The maximum taxable deduction can be for Rs. 1,00,000 which will all the savings investments that are eligible for tax deduction under Section 80C.
For Example – Say you earn an interest of Rs.20, 000 on your recurring deposit for a year and your annual income is Rs.3, 00, 000. This means you are liable to pay an income tax of 10 percent on Rs.50, 000 (No tax up to Rs.2.5 Lakhs), which amounts to Rs.5000 and TDS of Rs.2000 is deducted on the interest earned on your recurring deposit. So, at the end of the year you have to pay Rs.3000 to the government as income tax. The bank will give you a TDS certificate proving that you have paid the Rs.2000 to the government already.
Read More Article on Recurring Deposit
- How to Open a Recurring Deposit Online?
- Know About Flexi Recurring Deposit Schemes
- Major Differences Between Recurring Deposit and Fixed Deposit
- Comparison Between Recurring Deposit and Chit Fund
- Highest RD Interest Rate Banks in India
- Recurring Deposit Interest Rates of All Banks
- How to Open Recurring Deposit in SBI Online
- Monthly Recurring Deposit
- SBI Flexi Deposit Scheme
- PNB Swechha Jama Yojna Flexi Recurring Deposit
- Bank of India Star Flexi-Recurring Deposit
- Baroda Samriddhi Half Yearly RD scheme
- Canara Dhanvarsha Flexi Recurring Deposit Scheme
- Union Bank Cumulative Recurring Deposit Scheme
- Union Monthly Plus Recurring Deposit Scheme
- Indian Bank Swarna Nidhi Recurring Deposit Scheme
- Difference Between LIC and Recurring Deposit
- Indian Bank Variable Recurring Deposit Scheme
- Baroda Samriddhi Quarterly Recurring Deposit
- PNB Special Recurring Deposit Scheme
- PNB Lakhpati Deposit Scheme
- Bank of Baroda Yatha Shakti Jama Yojana Scheme
News About Tax on Recurring Deposit Interest Rates
EPFO Has Cut the Interest on EPF to 8.65%
The Employees Provident Fund Organisation has made a small cut in the interest on EPF to 8.65%. EPFO invests 65% of its funds in government securities. Besides the tax free status, the interest rates offered by EPFO are higher compared to other zero-risk investment schemes. PPF has similar tax free status, and offers 8% rate of interest. Most bank deposit schemes like that of a 1-year post-office deposit, offer up to 5.6% interest rate, and the earnings are taxable. While a 5-year NSC offers 6.4% interest rate p.a, the earnings are taxable. NSC also offers tax benefits under Section 80C. Some believe that the Finance Minister could consider revising tax benefits for investment products in the new budget.
22nd December, 2016