This is what Albert Einstein has to say on filing income tax returns,
“This is too difficult for a mathematician. It takes a philosopher.”
Find calculating your income tax difficult? You’re not alone. Even the great Albert Einstein, finds income tax, a difficult topic to discuss.You have invested your hard earned money, in a recurring deposit. This is an excellent investment, if you are a conservative investor. For those who don’t know, a recurring deposit is just like an SIP of a mutual fund. You open an RD (Recurring Deposit) account, with a bank.
You deposit a fixed sum of money every month, into this recurring deposit account. Your RD matures at a specific date in the future. You earn interest on RD, at similar rates as an FD (Fixed Deposit). Now to the big question…..how to calculate tax on RD interest? IndianMoney.com is the pioneer in Financial Education space. IndianMoney.com believes that the dream of developed India is possible, only when we achieve 100% financial literacy. Just leave a missed call on IndianMoney.com financial education helpline 02261816111 or just post a request on IndianMoney.com website.
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The interest income you earn on recurring deposits, is taxed. The interest income you get from your RD, is added as ‘income from other sources’ when you file IT Returns. Recurring deposits attract TDS (Tax Deduction at Source), at 10% of the interest you earn, on the recurring deposit. This rule came into effect from 1st June 2015. Prior to this, there was no TDS charged, on interest earned from recurring deposits. Now RD’s are at par with FD’s, as far as TDS on interest is concerned. No TDS is deducted on RD interest income, up to INR 10,000 a year.
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How much income tax do you need to pay on RD Interest?
Income tax slabs for males and females who are below 60 years of age
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You have a taxable income below INR 2.5 Lakhs. You earn interest income on your recurring deposit, more than INR 10,000 a year. Your bank will still deduct TDS at the rate of 10%, on the interest you earn on the RD. You have to submit Form 15 G to avoid TDS. You can claim a refund on the TDS that has been deducted, by filing income tax returns.
You have a taxable income, between INR 2.5 Lakhs to INR 5 lakhs. You earn interest income on RD, more than INR 10,000 a year. You do not have to pay any extra income tax. The income tax rate of 10%, matches with bank TDS rate of 10%.
You have a taxable income, between INR 5 Lakhs to INR 10 lakhs. You earn interest income on RD, more than INR 10,000 a year. The bank will deduct a TDS at 10%, on the interest you earn on RD. You earn taxable income between INR 5 Lakhs to INR 10 Lakhs. You have to pay income tax, at the rate of 20%. The bank has only deducted TDS, at the rate of 10%. You have to pay 10.3% beyond TDS rate, when you file ITR.
You have a taxable income, more than INR 10 Lakhs. You earn interest income on RD, more than INR 10,000 a year. The bank will deduct TDS at 10%, on the interest you earn on RD. You fall in the taxable bracket above INR 10 Lakhs, where the interest income from your recurring deposit, is taxed at 30%. However the bank has deducted only 10% as TDS, on your RD interest income. You have to pay 20.6% beyond TDS rate, when you file ITR.
Let’s end this article on a humorous note. A fine is a tax for doing wrong. A tax is a fine for doing well. So calculate the income tax you have to pay on recurring deposit interest, and be the master of your destiny.
Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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