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Tax on Recurring Deposit Interest Rates

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 best rd rates that are similar to what you earn on fixed deposits.

For the people who are first-time investors and wish to park their money in a safe-investment, a recurring deposit is one of the most suited investment options. A recurring deposit can be opened with any bank and does not carry market risks. Any amount of money can be deposited per month and banks allot a rate of interest per annum which will be accrued and given to the account holder on a quarterly or half-yearly basis.

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 deducted on interest earned on the recurring deposit 10% (only if the earned interest is more than Rs.10,000)
TDS deducted for failure of provide PAN 20%
Forms to be submitted if income falls under non-taxable income Form 15G

TDS on Recurring Deposit

Tax on Recurring Deposit

Similar to most personal savings instruments such as fixed deposits, 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 2020-21: 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 tax slab 2020-21 below:

Income Taxation Slab 2017-18 for RD
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.

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.

Frequently Asked Questions (FAQs)

  1. Is the interest earned on RD taxable?
  2. Yes, the interest amount earned from your RD account is taxable.

  3. What percentage is deducted as TDS?
  4. A TDS of 10 percent is deducted on the interest earned.

  5. Will TDS be deducted if the interest earned is below Rs.10,000?
  6. If the interest earned on the RD account is below Rs.10,000, no TDS will be deducted.

  7. Will the TDS percent increase if I don’t provide my PAN information?
  8. Yes, if PAN information is not provided, the tax deducted at source (TDS) will be 20 percent.

  9. I am below 60 years of age. Which form do I need to fill to save taxation on my income?
  10. You need to fill and submit Form15G, if you want to save taxation.

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