RD and FD’s are very simple financial tools, which are easy to understand. In fact many of us want to start or have started the investment plan in either RD or FD. These are excellent investment and saving instruments which helps us in building a corpus for short and medium term goals like creating an emergency fund, kid’s education fees, saving for big time purchases like Air Conditioners, LED’s, etc. They are very popular because of safety and assured returns.
Nowadays almost every bank is revamping their manner of operation via making the investments in deposits online, providing lot of innovative and flexible RDs, etc. But when the question in respect of tax implication is raised there is a big question mark.
The Annual Budget 2015 - 2016 did not bring much relief to Tax deducted at Source. There were only few cosmetic changes with no changes in current rate under any section. But these slight changes are very critical and need is to keep them in mind as they have a direct impact on middle strata of the society.
Recurring Deposits Taxes: How do they Work?
The income that you earn in the form of interests on your RDs is not tax free, they are amenable to taxes. And the TDS is charged against the interest that is earned from the recurring deposits. The Budget of 2015-2016 has brought RDs at par with the FDs and for TDS purposes and has proposed to amend the relevant section to include RD and to levy the similar kind of tax as is levied on Fixed Deposits. Interest earned on FDs is liable to taxes at the rate of 10% if your annual income exceeds Rs. 10,000/- and the same is proposed for the RDs also.
With effect from 1st June, 2015 if the interest earned on Recurring Deposits exceeds Rs. 10,000/- then such interest is liable to be charged against TDS.
This provision of charging TDS is applicable on all individuals who receive proceeds of life insurance policy, even if they have an income below the basic exemption limit. Besides, you need to add the interest income under the head of ‘income from other sources’ when you file your IT returns. Interests that you pay on your RDs and FDs is fully taxable at you income rate thus even after TDS is deducted you might still have to pay more taxes.
The above said provision imposed TDS on all the individuals who receive interest from RD, irrespective of their income being below the basic exemption limit. But Budget 2015 exempts such policy holders who do not have income chargeable to tax from paying TDS on the benefits such policies. And for availing such exemption a policy holder need to fill in form 15G or Form 15h for non-senior citizens and for senior citizens respectively, to the insurer, before the end of the financial year.
