Tax on Recurring Deposit

Tax on Recurring Deposit Interest Rates 2023 - An Overview

Recurring deposits are term deposits that allow you to invest a set amount each month for a predetermined period while offering you top RD rates that are comparable to those on fixed deposits. It is one of the best investment options for people who are first-time investors and want to put their money in a secure investment. Banks can accept recurring deposits, which are free of market risk. Any amount of money may be deposited monthly, and banks assign an annual interest rate that will be accumulated and paid to the account holder every quarter or every half-year.

You must have a savings account with the bank whose recurring deposit proposal you have selected to begin a recurring deposit account with that bank. You can put the cash in your savings account, from which the bank will withdraw money each month and send it to the account for regular deposits.

TDS on Recurring Deposit

Recurring deposits are taxed similarly to the majority of personal savings instruments like fixed deposits. They are also subject to TDS. TDS is mandated by the Income Tax Act of 1961 by the Indian government. Except for minor changes and tweaks to the taxation slab, from time to time these laws remain unchanged.

Income Tax on Recurring Deposit Amount

The sum of money deposited in a recurring deposit each year will be included in the investor's yearly income. Your interest on your recurring deposit is subject to a Tax Deducted at Source (TDS) of 10%. If the interest you get on your recurring deposit is less than or equal to ₹10,000, no TDS is acquired. If you don't submit your PAN information, the TDS will be charged at 20%. Even though their income is exempt from taxation, they must still file Form 15G in order to be taxed on both fixed and recurring deposits.

Form 15G, 15H and Form 16A

If you want to minimise your income taxes, Form 15G is a regulation. But your employer fills out and gives you the Form 16A, and deduct the TDS from your pay. Form 16A will be given regardless of whether you are eligible for TDS on your income. Form 15G is only applicable to individuals under the age of 60. Form 15H is a similar ITR submission form to Form 15G, but it is only available to those who are 60 years of age or older.

Current Income Taxation Slab 2023-24:

For Indian citizens upto 60 years old check out the income tax bracket 2023–24 below to determine whether you need to fill out and submit Form 15G for your taxes:

Surcharge

• 10% of households with total annual incomes of between ₹50 lakh and ₹1 crore
• 15% for incomes totaling between ₹1 crore and ₹2 crore
• 25% of cases where the total income is between ₹2 and ₹crore
• 25% of cases where the total income is between ₹2 and ₹crore
• 37% of cases where the total income is greater than or equal to ₹10 crore

Recurring Deposit Tax Exemption

Although uncommon, there are several instruments that qualify as periodic deposits and are free from income tax and recurring deposits are one of them. To ensure that their funds are not lost, people do search for tax-saving recurring contributions. Unfortunately, there isn't a lot of information available about whether the interest on recurring deposits is taxable.

As an illustration, let's say your annual salary is ₹3,000,000 and you receive ₹20,000 in interest on your recurring deposit over the course of a year. This indicates that you must pay TDS of ₹2000 on the interest gained on your recurring deposit in addition to paying income tax of ₹5000 on ₹50,000 (10% tax up to ₹2.5 Lakhs). Therefore, you must pay ₹3000 at the end of the year to the government as income tax return. The bank will give you a TDS certificate proving that you have paid the ₹2000 to the government already.

Tax on Recurring Deposit Interest Rates in 2023

The interest earned on recurring deposits (RDs) is taxable under the Income Tax Act, 1961. The tax rate depends on the taxpayer's income tax slab and whether the PAN is provided to the bank.

• If the PAN is provided, the TDS on RD interest is 10% for the first Rs. 10,000 of interest earned in a financial year. TDS is not deducted for the interest earned above Rs. 10,000.
• If the PAN is not provided, the TDS on RD interest is 20% for the entire interest earned in a financial year.

Latest Updates

• The interest rates on RDs have been revised upwards by most banks in 2023. The revised interest rates are still lower than the interest rates offered on other investment options such as fixed deposits (FDs).
• The government has also introduced a new tax deduction scheme, Pradhan Mantri Sukanya Samriddhi Yojana (PMSY), which offers higher interest rates on deposits made for the girl child.

How to Calculate TDS on RD

The TDS on RD interest can be calculated using the following formula:

TDS = (Interest Earned * TDS Rate)/100

For example, if the interest earned on an RD is Rs. 10,000 and the PAN is provided, the TDS will be Rs. 1000 (10000 * 10/100).

Benefits of RD

• RDs are a safe investment option as the interest earned is guaranteed by the bank.
• RDs offer fixed returns, which can be helpful for investors who want to plan their finances in advance.
• RDs can be opened with a small amount of money, making them accessible to investors of all income levels.
• RDs can be a good option for investors who want to save money for a specific goal, such as a child's education or retirement.

Tax Benefits on RD

RDs are not eligible for any tax deductions under Section 80C of the Income Tax Act, 1961. However, the interest earned on RDs is taxable at the investor's income tax slab.

Which is the Best RD – How to Choose

The best RD for you will depend on your individual circumstances and needs. Some factors to consider when choosing an RD include:

• The interest rate offered
• The minimum deposit amount
• The tenure of the RD
• The flexibility to withdraw funds
• The charges levied by the bank

Documents Required

The following documents are required to open an RD account:

• PAN card
• Identity proof (such as passport, driving license, or voter ID card)
• Address proof (such as utility bill or bank statement)

Premature Withdrawal of RD

RDs can be withdrawn prematurely, but there may be a penalty for doing so. The penalty amount depends on the bank and the tenure of the RD.

Why Vakilsearch?

Vakilsearch's major objective is to simplify the legal process and make it easy for a layman. When it comes to questions pertaining to TDS, our team of legal professionals can offer a comprehensive response. To get answers to all of your questions about TDS, speak with our tax professionals and business authorities. We have the highest customer satisfaction rating and assist more than 1000 businesses each month with legal issues. So get in touch with our experts right away!