Everything you need to know about tax on Recurring Deposit

Recurring Deposits (RDs) are a popular savings instrument in India, providing individuals with a guaranteed return on their regular investments. When it comes to RDs, you should be aware of tax deduction at source (TDS) on the interest you earn on such deposits. In other words, TDS on Recurring Deposits is an important consideration when you choose it as your investment tool.

What is TDS on Recurring Deposits?

TDS refers to a mechanism where tax is deducted directly from the source of income by the payer. In the case of RDs, the bank deducts TDS from the interest earned and deposits it into the government's account on your behalf. It is important to note that tax on Recurring Deposits is applicable only on the interest earned and not on the principal amount deposited.

Axis Bank Recurring Deposits start with a minimum monthly installment of ₹500 while there is no cap on maximum limit. RD accounts at Axis Bank can be opened for a minimum tenure of six months, up to 10 years. To calculate how much interest you will earn from your RD, you can use the Axis Bank RD calculator. It will help you plan your investments wisely.

What is the tax on RD interest?

Tax on RD interest comes when the total interest earned in a financial year exceeds ₹10,000. However, for senior citizens aged 60 or above, this threshold is set at ₹50,000.

What is income tax on Recurring Deposit amount?

To help you understand TDS on recurring deposits better, here are some key aspects to consider:

• Applicability of TDS: TDS is applicable based on two factors – the interest amount earned and PAN card submission.
• Threshold difference: The threshold for TDS differs for regular individuals and senior citizens. For regular individuals, it is ₹10,000, while for senior citizens aged 60 or above, it is ₹50,000.
• Higher deduction rate: If you haven't provided your PAN card details, tax benefits on RD will be deducted at a higher rate of 20%, regardless of the interest amount.
• Exceptions for lower income individuals: If your annual income is below the taxable limit, you can submit Form 15G or Form 15H (for senior citizens) to the bank to avoid TDS deduction.

Form 15G, Form 15H, and Form 16A

To avoid a TDS deduction on your RD interest, you can submit either Form 15G or Form 15H to the bank. Form 15G is for individuals aged below 60 with an annual income below the taxable limit, while Form 15H is for senior citizens. Additionally, banks provide a certificate known as Form 16A that specifies the details of TDS deductions made on RD interest.

Recurring Deposit tax exemption

Unfortunately, there are no specific tax benefits or tax exemptions on Recurring Deposits available under the Income Tax Act. However, if the total tax deducted exceeds your tax liability, you can claim a refund by filing an income tax return.

How to declare interest earned on Recurring Deposit in ITR?

When filing your income tax return, it is crucial to declare the interest earned from Recurring Deposits accurately. You can do this by using the Schedule OS of the ITR form and providing detailed information related to your interest income from Recurring Deposits.

How to calculate TDS on RD?

Calculating TDS on RD interest can be done using examples and tables. Let's consider an individual earning ₹12,000 as interest on their RD:

• For regular individuals with PAN card details submitted, TDS will be deducted at 10% on the interest amount exceeding ₹10,000 (10% on ₹2,000 in this case).
• For regular individuals without PAN card details submitted, TDS will be deducted at a higher rate of 20% on the total interest amount (20% on ₹2,000 in this case).

Also Read: A quick guide to Recurring Deposit (RD) premature closure or withdrawal

Wrapping up

Understanding Recurring Deposit tax deductions helps you manage your finances effectively. Keeping the key factors that trigger its application and taking necessary steps like submitting your PAN and claiming refunds when applicable, you can ensure that your tax obligations are met efficiently. Stay informed and make clear decisions regarding your Recurring Deposit investments to optimise your savings.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.