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TDS on Recurring Deposit (RD) accounts from June 2015


 As result of new proposal in the Union Budget 2015-16, Banks and Post Offices will have to deduct the 10% of the interest on Recurring Deposits (RD) as TDS from 1st June 2015 onwards.  The TDS will be applicable only if the interest earned on RD accounts exceeds Rs. 10000/- a year.


Interest earned on deposits in cooperative banks has also been brought under TDS.  Earlier there was no TDS for Recurring Deposits in all institutions, only interest on fixed deposits was taken for TDS calculation.

Investors with no taxable income will have to submit Form 15G to avoid TDS on both recurring deposits and fixed deposits. For senior citizens, the requisite form for avoiding TDS is 15H.

The rules for applicability of TDS on interest income from bank deposits have also been changed. Earlier, TDS was applicable if the interest earned on deposits in a particular branch of a bank was more than Rs. 10,000 in a year. Now, the branch restriction has been removed. The total interest on multiple deposits at different branches of the bank would now be considered together for the purpose of calculating TDS.

This new rule will make impact on investors who makes deposits in different branches of a particular bank in order to escape from the TDS.
These new proposal will make impact on the business of the banks and Post Offices who deals with large number of RD accounts.  Because if the TDS is collected from a depositor, he will have include this interest income as part taxable income in his Income Tax returns.  Otherwise mismatch will be happened since the TDS has been linked with his PAN.

Income Tax on such interest on RD accounts would be levied as per the Income Tax Slab Rates of the person receiving the interest. The current income tax slab rates can be divided into the Nil category, 10% category, 20% category and the 30% category.

The person receiving the Interest on RD cannot claim any deduction on the same and tax would be levied on the full interest amount as compared to Interest on Savings Account on which a deduction of Rs. 10,000 is allowed.
 
 

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