- Date : 15/02/2023
- Read: 3 mins
Recurring deposits can help you save regularly (instead of lump sum) to create a small corpus to take care of your small unexpected expenses. Are recurring deposit interest rates taxable? What are the threshold levels? Is the tax on Indian Post Office Recurring Deposit and bank RD different? Also, learn about income tax deductions and exemptions on recurring deposits.
Tax on Recurring Deposit Interest Rates: A Complete Guide 2023
A recurring deposit is one of India's most popular and safer fixed investment options. It enables you to make small investments regularly instead of a lump sum. Depending upon the tenure and other factors, you can earn a 3-8% interest rate on RDs. Consequently, you can create a corpus over the long run. Recurring deposit schemes are usually more flexible than fixed deposits (FDs). If you want to save money and create a corpus to take care of your small but unexpected expenses, RD is the perfect investment option. Just like any other investment, you've to pay tax on recurring deposit interest rates. Do you want to learn about recurring deposit tax exemption, rates, and calculation? If yes, learn more.
Recurring Deposit and Taxes in India
You can open an RD account with either a bank or post office. Tax on recurring deposit interest rates is levied only if you earn over Rs. 10,000 as an interest payment. The tax is applied as tax deducted at source (TDS). The bank or post office submits the deducted amount to the income tax department.
How to Calculate TDS on RD?
Calculation of TDS on RD if you provide your PAN details
- 10% tax is deducted at the source if you provide your PAN details.
- For a normal citizen, the threshold TDS level is Rs. 40,000.
- If your interest income exceeds Rs. 40,000, the bank or post office will deduct tax at a reduced rate on the interest earned on your recurring deposit.
- If it is below the threshold level, no tax will be deducted from bank or post office recurring deposits.
- For a senior citizen, the threshold TDS level is Rs. 50,000.
Calculation of TDS on RD if you don’t provide your PAN details
- 20% tax is deducted at the source if you don't provide your PAN details.
- The threshold level for:
- Normal citizen is Rs. 40,000
- Senior citizen is Rs. 50,000
Tax Deduction on Recurring Deposit
Bank RD
If you invest in a recurring bank deposit, you'll not receive any deduction from taxation. (As per the Income Tax Act, 1961's Section 80C).
Post Office RD
If you invest in a post office recurring deposit for 5-years, you can avail tax deduction facility. In a financial year, you can get tax benefits amounting to Rs. 1.5 lakhs.
If your income comes under the non-taxable income slab, you must submit the 15G form for taxation. For individual investors, the tax rate depends on their applicable tax slab rate.
Recurring Deposit Tax Exemption
Bank RD
Certain instruments can be used for claiming tax exemption on recurring deposits. However, they are rare. You will receive a TDS certificate from the bank. You can use it at the time of tax filing for tax exemption.
Post Office RD
If you invest in a post office recurring deposit, your investment is not eligible for tax exemption.
How to Declare Interest Earned from RD while Filing ITR?
While filing your income tax return, you must include your interest earned from your recurring deposit under the heading "Income from other sources."
