Recurring Deposit Taxes & Fixed Deposit Taxes – How do they work? (RD & FD)

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• Hi Sreekanth,

  Thanks for such an informative article.
  I had a doubt though. In your article you had mentioned "If your income is over Rs 10 Lakh, the differential tax rate is 20.60%.". This differential tax will be calculated on the Principle amount as well or only the accumulated interest? The reason I am asking this is, since a person's salary is already taxed before being credited to salary account and after the tax deduction a person opens an RD.

  • Dear Mr.Iyer..The taxes have to be paid on the earned/accrued interest income only.

• Dear Mr.Sreekanth Reddy

  I have a query on tax applicability on interest income from Recurring Deposits effective 1st June 2015.
  We want to know interest to be reckoned whether from 1st June 2015 prospectively or 1st April 2015 retrospectively to be included for tax computation for FY 2015-16.

  In short - Would interest earned on RDs (matured / running) before 1st June 2015 also attract tax ?

  Shall be thankful for your clarification.

  Regards
  Narasimhan

  • Dear Narasimhan,
    I believe that this new rule is applicable from June 1st and not from Apr 1st.

    • Thanks

      Narasimhan

• Hi

  For RDs, Is interest rate compounded. And if yes, then is it monthly / quarterly / Annually. I'm more specific to SBI RDs

  • Dear Akur..I believe that it is compounded on a quarterly basis. You may check with SBI directly.

• I hope you have answer for this . Iworked in India for a few years as a US citizen with OCI. I have 2 tax saver FDs which mature in 2018. My status has changed to NRI and I am requesting bank to change status from resident to NRO and re designate my savings account and FD. At the time of opening these FDs , verbally, I was told that they could be re designated as tax saver FD s cannot be closed prematurely. I do not have anything in written.
  For last 15 days, I have been referred from one person to another and in last communication, virtual relationship manager referred me to NRI service center, which is basically a call center. Call center is telling me to mark re book instead of re designate. Under terms and condition in the conversion form, it says fixed deposit will be liquidated and re-booked. Doesn't this violate terms of Tax saver FD.
  Its much harder to communicate now as I am outside India . I am sure my situation is not rare. Resident to NRO and vice versa is a common phenomenon now. I have searched RBI circulars and there it says "all accounts and fixed deposits will be re designated on status change from resident to NRO." I have not yet come across any mention of tax Saver FD.
  Do have any suggestion.

  • Dear Deepa,
    Yes, it violates T&C of tax saver FDs. One can not redeem or close the Tax saving FDs before the maturity date.
    I believe you can escalate this issue to higher authorities of your bank. If ok, share the name of your bank.

• Sir,
  My brother is working in one of the leading MNCs and invests Rs. 50000 every month in RD which was opened through my mother's name.So my question is whether my mother is liable to pay the taxes as she has no income besides receiving interest income on RD. Can she be liable to file the return under income tax? Or will the income receives by my mother be clubbed in the hands of my brother?

  • Dear Mukund,
    Your banker will deduct TDS if the interest earned on this RD a/c is more than Rs 10,000.
    If she does not have any other source of income and if this interest income is less than Rs 2.5 Lakh (Rs 3 Lakh if your mother's age is between 60 to 80 years), you may submit Form 15G or Form 15H to avoid TDS.
    Incase if bank has already deducted TDS then you can claim refund by filing ITR.

    Read my articles;
    TDS MisconceptionsNew Form15G/H

    How to fill Form 15G/ form 15H.

    New Form 15G / Form15H.

    Gifts & Clubbing of income.
    (But do note that interest income from RD is taxable)

• Sir,

  I have a bank fixed deposit in the year 2014-15 for five years which is eligible for income tax exemption in the AY 2015-16 But it was not claimed in that year. Now my question is shall I claim this fixed deposit in this AY2016-17. Please reply as early as possible

• Dear Sreekanth,

  Can you please clarify me that interest earned on minor's FD will be clubbed to father's or mother's income for tax purpose ?, and does it depends on the guardian of the minor ?

  Thanks in advance.

• I have a doubt. I have a couple of FDs that will be maturing in the next year. I don't get the interest money in my savings a/c. Do I have to pay the taxes in this year or once when they are matiured. I fall in 20 % slab.

  • Dear Ankur,
    It is better to follow accrual method. Did bank deduct TDS and whether it is reflected in your Form 16A??

• Hi,

  I have a question regarding accrued and paid interest for a FY and how to show the same at the time of filling return. Last year my bank provided with a interest certificate that showed a combined interest amount (paid+accrued) and i declared the entire amount in my ITR form and paid tax on it.
  This year the bank has provided me with interest certificate that shows accrued and paid interest separately.

  My question is that doesnt part of accrued interest from the previous FY become paid interest in the current FY. The bank tells me to declare both accrued + paid interest and pay tax on it for this FY. but since i have already paid tax for accrued interest last year, wont i be tax paying again if i show entire amount this year?

  Please advice.

  Note that I have a sweep account where automatic FDs are made and interest is accumalated, however if a FD is partly broken, tax on that amount is paid to me right away.

  Thanks,
  Maryushka

  • Dear maryushka,
    If you have already accounted for a portion of the interest that is earned in previous years then there is no need to included it again in this year's ITR.

    • Thanks Sreekanth!
      So that means that accrued interest does become paid in the next financial year right?

      Let me give you an example: For a particular FD, this was the details provided by bank
      - FY 2013-14 -> interest accrued + interest paid = rs 2989/- (on which amount i paid tax)
      - FY 2014-15 -> interest accrued =812/- and interest paid = rs 2543/-

      From this FY onwards i would like to pay tax only on paid interest
      since I have already shown accrued interest in last FY, should i be paying tax on Paid interest in this year.

      I am confused, because these FDs are made from sweep account, and the accrued interest will be calculated based balance at a particular amount which changes throughout the year, so ideally the accrued interest will go on changing. Please advice

      • Dear maryushka,
        The best thing to do in this case is, to crosscheck the TDS details given in your Form 26AS. You can show the amount under 'Total amount paid/credited' column in your ITR. Also, show the TDS which is already deducted by your banker in the ITR.

        • Hi Sreekanth,

          A CA friend had also advised the same but no amount appears in my form 26A as I have submitted form 15G to the bank and hence the bank is not deducting TDS

        • Dear maryushka..Is your income less than basic exemption limit?

        • Hi Sreekanth,
          No, Actually its above the limit and I was not aware that I should'nt be giving the 15 G form last year. I used to submit the same as too many transactions used to happen because of my Sweep Account. This year onwards I will not submit the same.

        • Dear maryushka..ideally you should pay taxes on interest accrued, because you might have already paid taxes for 'interest amounts that are paid'.

        • Thanks Sreekanth!

• Dear Shreekanth,
  Your explanation on RD & FD interest liability and taxes to be paid is excellent. I am enriched with the information. I think, the clause of RD interest taxable applies to the FY2015-16 and not from the financial year 2014-15 (AY2015-16). The point is that I have received Rs. 8500/- as interest on RDs and SB account received in FY 2014-15. Am I liable to show in the income (received from other sources) since I am a tax payer and pay the tax in in the AY2015-16? Please advice.

  • Dear Mohan,
    The TDS clause is applicable from FY 2015-16.
    But do note that the interest earned on FDs or RDs is taxable (even if TDS is not applicable). You have to show them in your Tax Return.

    • Thanks for the advice