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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 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.

    Tax on Recurring Deposit

    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.

    Annual Income for Male/ Female ( up to 60 years of age) Tax Rate TDS Charged by the Bank on Interest Earned on Recurring Deposit
    Up to Rs.2, 50, 000 Nil 10 percent
    Rs.2, 50, 001 to 5, 00, 000 10 percent 10 percent
    Rs.5, 00, 000 to Rs.10, 00, 000 20 percent 10 percent
    Above Rs.10, 00, 000 30 percent 10 percent

    • If your annual income is up to Rs.2.5 Lakhs – Even if you earn an income which exempts you from paying income tax, a TDS of 10 percent will still be deducted from your account by the bank. This deduction will be made if the interest earned from recurring deposit is more than Rs.10, 000 annually. You can avoid paying this TDS by informing the bank that you do not have to pay any income tax. This information can be provided to the the bank by submitting a declaration to them through a form.

    • If your annual income is above Rs.2.5 Lakhs – If you earn an interest that exceeds Rs.10, 000 on your recurring deposits in a year, the bank will deduct 10 % TDS on it and pay it to the Government on your behalf and provide you with a TDS certificate. Depending on the income tax slab you fall in, you have to pay the remaining amount of income tax after deducting the TDS to the government at the end of the year. While filing your Income Tax Returns, you have to show the TDS certificate as proof that the TDS has been paid.

    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.

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