Recurring Deposits are a popular savings instrument in India, providing individuals with a guaranteed return on their regular investments. Regarding RDs, you should be aware of tax deductions at the source based on your interest earnings. TDS on RDs is an important consideration when you choose it as your investment tool.

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

How to calculate your earnings?

Most banks allow you to open an RD online or offline by submitting the documents at the branch. The minimum instalment amount is Rs. 500 without an upper limit. You can open the account for a minimum tenure of six months up to 10 years. You can use the RD calculator to calculate interest earnings.

What is a tax on RD interest?

RD interest tax applies when the total interest earned in a financial year exceeds Rs. 10,000. However, for senior citizens aged 60 or above, this threshold is set at Rs. 50,000. However, you need to consider a few essential aspects before calculating the returns after TDS:

Applicability

The tax deduction at source is applicable based on two factors: the interest amount earned and whether the account holder owns a PAN Card and presents it to the bank upon opening the RD Account. Remember, every bank’s RD interest rates vary, depending on their policies and the account type. Ensure you compare several schemes before selecting the best one.

Higher deduction rates

If you do not submit your PAN Card details to the bank after opening the account, the tax benefits on RD will get deducted at a higher rate of 20%, regardless of the interest amount you have earned. On the other hand, if you hold a PAN Card, the TDS will be deducted at 10% of the income earned from Recurring Deposit interest rates.

If the annual income is below the taxable limit, you can submit Form 15G or 15H (for senior citizens) to the bank and instruct them to exempt you from tax deductions. Additionally, banks provide a certificate known as Form 16A specifying the details of the TDS deductions made on RD interest income. If the total tax deducted exceeds your tax liability, you are allowed to claim a refund by filing an ITR.

Conclusion

Understanding RD tax deductions helps you manage your finances effectively. By 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 investment decisions to optimise your savings.