Categories: BankingFixed Income (FD,RD,PF..)

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

I am sure most of us might have heard about one of the popular savings tool called Recurring Deposit (RD). Infact most of us might have started the investment plan with an investment in RD or Fixed Deposit (FD). These are excellent investment/saving tools to accumulate a corpus for short term goals like creating an emergency fund, creating a corpus to meet Kid’s yearly education fees, saving for big time purchases like LED TV etc., They are safe and provide guaranteed returns.

Financial products like RDs and FDs are very simple to understand and invest. Now, almost every bank provides you the option to invest in these deposits through online mode. Many banks do provide lot of innovative and flexible Recurring Deposits now (For example – ICICI Bank’s iWish Flexible RD). But, when it comes to Recurring Deposit Taxes and Fixed deposit taxes – how they work with respect to tax implications is still a big question mark (confusing point) for many of us.

In this post let us understand – Whether the interest earned on Fixed Deposits and Recurring deposits is tax free? Is recurring deposit interest is taxable or not? How are RD maturity and FD maturity amounts treated in terms of taxation? Should I pay taxes every year on RD/FD or should I pay the income tax on the maturity date of my RD/FD? How is TDS (Tax Deducted at Source) applicable on Recurring deposit (RD) and FD? Budget 2015 – Is TDS now applicable on Recurring Deposits (RDs)? How to calculate interest amount on RD and FD? Do they have any income tax benefits or exemptions?

From your Income Tax Returns point of view, it is very important to understand the below points. I have seen many investors  ignoring (or may be not aware of) the Fixed deposit taxes and Recurring Deposit taxes in their Income Tax Returns (ITR). I am sure you might have heard or seen your friend(s) receiving ‘compliance notices’ from Income Tax department for not showing these Time Deposits (FDs & RDs) in ITRs.

Tax implications on Fixed Deposits

  • There are no income tax benefits or deductions applicable for Fixed Deposits. The interest income earned on Fixed deposits is taxable. (5 year Tax saving Bank Deposit have tax exemption under Section 80c, but the interest income earned is taxable on these deposits too.)
  • Banks do not deduct TDS if the Interest income earned on Fixed Deposits is less than Rs 10,000 Rs 40,000 per year (from AY 2020-21). That does not mean this is a tax-free income in your hands. You still need to add this as ‘income from other source’ when you file your Income Tax Returns. (If the interest exceeds Rs 40,000 in a financial year, the bank will deduct 10 per cent tax before crediting the interest to the account.)
  • Interest income on your Savings Bank Account up to Rs 10,000 is tax free as per Income Tax Act 1961. Do not get confused this with the above point. Interest on your Savings a/c balance is different from the FD interest.
  • Individuals who do not have taxable income and do not have any other source of income can submit Form 15 G (or) Form 15 H (above 60 years old person-senior citizens) to their banks to avoid TDS. NRIs cannot submit these forms. If your interest income itself is above the income tax exemption limit (for a given Financial Year)then you are not eligible to submit these forms. Remember that you need to submit Form 15 G or Form 15H every year. Banks may ask you to mention the details about your other Bank(s) FDs too.
  • If your interest income on a Fixed Deposit is more than Rs 40,000 then you need to show the entire interest income when you are filling your Tax returns. If banks have deducted TDS on this income, you can capture this information in the “TDS Sheet” of your Income Tax Returns form.( Banks deduct TDS on FDs at 10 per cent only if the interest exceeds Rs 40,000 in a financial year. But your actual income tax slab may be say 30%. So, you need to pay the income taxes according to your slab.)
  • An important aspect which one needs to keep in mind is that you have to furnish your PAN (Permanent Account Number) number to the bank. If you fail to furnish the PAN number, the bank shall deduct tax at the rate of 20% instead of 10% generally applicable.

Recurring Deposit Taxes – How do they work?

  • As per the provisions of Income Tax Act, there are certain investments/deposits on which no tax is required to be deducted without any limit of the amount of such interest.  Tax is not deducted on any interest paid on any savings account or deposit in any of your recurring deposit account, be it with any bank, or Co-operative credit society or Cooperative bank.
  • Banks Deduct TDS on your Fixed Deposits but not on Recurring Deposits. “No TDS on RD is charged,” this does not mean, it is a tax free income. It’s a misconception.
  • The interest income earned on your RD is not exempted from income tax. It is taxable.
  • You need to add the interest income as ‘income from other source’ when you file your IT returns.

Latest News : The budget 2015-2016 has put RDs at par with FDs for TDS purpose. Banks will deduct Tax Deducted at Source (TDS) on Recurring Deposits too, from 1st June, 2015. Remember, TDS doesn’t end your Tax Liability.  Interest on RDs & FDs is fully taxable as income at the rate applicable to you. So even if TDS has been cut, you might have to pay more tax.

Budget 2018- 19 & New Section 80TTB

For Senior Citizens, the Interest income earned on Fixed Deposits & Recurring Deposits (Banks / Post office schemes) will be exempt till Rs 50,000 (FY 2017-18 limit is up to Rs 10,000). This deduction can be claimed under new Section 80TTB. However, no deductions under existing 80TTA can be claimed if 80TTB tax benefit has been claimed (the limit for FY 2017-18 & FY 2018-19 u/s 80TTA is Rs 10,000).

Section 80TTA of Income Tax Act offers deductions on interest income earned from savings bank deposit of up to Rs 10,000. From FY 2018-19, this benefit will not be available for late Income Tax filers.

Budget 2018-19 has also proposed to raise the threshold for deduction of tax at source (TDS) on interest income of Bank / Post office / Co-operative Bank deposits for senior citizens from Rs 10,000 to Rs 50,000 (u/s 194A). This is applicable for FY 2018-19 / AY 2019-20. (Related Article : ‘List of Income Tax Exemptions for FY 2018-19‘)

How much Income Tax do I need to pay on FD’s & RD’s interest income?

  • If your taxable income is below Rs 2.5 Lakh and banks deduct TDS (you can submit Form 15 G/H to avoid TDS), you can claim back TDS as refund in your Income Tax Returns (ITR)
  • If your income is between Rs 2.5 Lakh to Rs 5 Lakh, you need not pay any extra income tax. Because, the income tax rate of 10% matches with Bank’s TDS rate which is also at 10%.
  • If your income is in the range of Rs 5 Lakh to Rs 10 Lakh, you need to pay 10.30% beyond the TDS rate.
  • If your income is over Rs 10 Lakh, the differential tax rate is 20.60%.

When to pay income tax on my Recurring Deposit (RD) or Fixed Deposit (FD)?

Now that we are clear about Recurring deposits taxes and Fixed deposits taxes, we also need to understand when to show the interest income for paying the applicable income taxes?. Do we need to pay taxes on this income every year or when the deposit matures?

The answer is, the taxes on Bank FD (over and above the TDS amount) and full tax amount on RD can be paid either in every financial year (or) on maturity. We can choose when to pay the taxes on FD and RD on maturity, instead of each Financial Year. But, once opted (when to pay the taxes) we need to stick to the same method. (Actually in accounting terms these are known as ‘Mercantile’ or ‘Cash’ accounting methods).

Is Fixed Deposit/RD Interest Of Minors Taxable?

Sometimes, you may open FD or RD deposit account in the name of your minor kid. If you have opened a FD in your minor child’s name, you need to pay tax on the entire interest income. The income is clubbed with your income.

Another interesting point is, what happens if your child becomes a MAJOR before the FD/RD matures?

In this case, if you have been paying taxes on FD/RD every year, the RD/FD’s interest income is taxable in the your hands as long as your kid is a minor. As soon as he/she becomes a major, it is treated as his/her income. Your child is liable to pay the taxes.

If you chose to pay taxes on FD/RD maturity date, the tax liability vests on you (if your kid is still a minor), else your kid (who is a major) is liable to pay the applicable taxes (if any).

Though it is headache to pay the taxes every year, it is better to show the interest income every year in your ITR. Else, you may receive compliance notice about time deposits for FD/RD amounts (if these are not included in your ITR). (Do not get scared when you receive these kind of IT notices. You can reply to Income Tax department about the method you have chosen. But do reply to these notices.)

How to calculate the interest income on RDs ?

Banks issue/send ‘interest certificate’ or ‘TDS certificate’ on your FDs & RDs every year. So, regarding FDs you are very clear about TDS and there is no confusion regarding the FD interest calculation part also. (Most of the banks have made these certificates available online. You can visit your bank’s website and download them).

Since Banks do not deduct TDS on Recurring Deposits, they do not issue TDS certificates for RD investments. So, the calculation of the total interest income earned on your RD(s) in a given Financial year can be quite cumbersome. (Also, most of the bank offer RDs on a quarterly compounding basis).

I suggest you to visit the below links to calculate the RD interest income.

  • RD calculator (Corporation Bank website) (This RD interest calculator considers investment in BEGIN mode. Lets say you book RD on a monthly basis, then it is assumed that the investments are made in the beginning of every month.) (You need to deduct the total invested RD amount from total maturity amount, to get the interest amount for a specific period.)
  • Freefincal.com

When do you pay FD/Recurring deposit taxes? Do you show the FD/RD interest in your Income Tax Returns (ITR) every Financial year? Do share your views and comments. Cheers!

Continue reading :

(Image courtesy of hin255 at FreeDigitalPhotos.net) 

This post was last modified on July 10, 2023 6:18 pm

Sreekanth Reddy

Sreekanth is the Man behind ReLakhs.com. He is an Independent Certified Financial Planner (CFP), engaged in blogging & property consultancy for the last 14 years through his firm ReLakhs Financial Services . He is not associated with any Financial product / service provider. The main aim of his blog is to "help investors take informed financial decisions." "Please note that the views given in this Blog/Comments Section/Forum are clarifications meant for reference and guidance of the readers to explore further on the topics/queries raised and take informed decisions. The information provided, therefore, should not be viewed as financial, legal, accounting, tax or investment advice."

View Comments

  • Hi Sreekanth,

    I want to open an RD account for period of 2 years. at the same time I do also expect that interest earned in a finance year should not exceed Rs. 10,000.

    Would you please suggest me maximum amount for which interest won't exceed the mention limit?

    I checked RD calculators online for monthly installment Rs. 5000 for 2 years with interest rate 8.5. I found the maturity amount is Rs.131143 with interest gained Rs. 11143. My understanding is as this interest is for 2 years, bank won't deduct tax on interest as it don't exceed the required limit.

    Could you please let me know whether my understanding is correct or not? Should I go with this option?

    Thank you.
    Avadhoot Nayakal

    • Dear Avadhoot,
      It depends on the rate of interest right? You may check with your banker.
      You may have to show the interest earned on RDs in your Tax returns (though just accrued but not paid in a given financial year). Kindly note that TDS not applicable does not mean that it is tax exempted.

  • Dear Sreekanth,

    I am NRI.
    Also am NOT India citizen.

    Question 1: Which ITR form am I supposed to use? I have only income from the FD.

    Question 2: Regarding disclosing number of bank account, do I mention only "saving" and/or "current" accounts? Are FD accounts considered neither?

    Question 3: Why is India government so stupid and not explain all these stupid things?

    Sorry, last question you no having to answer.
    Madhu

  • Dear Sree,

    You articel is very informative & clear. I have RD closed in the month of Feb 2015 & received interest and also I received from my bank to submit Form 15G, I have submitted too. But I am in the tax slab of 20% based on my salary. My question are 1) Do I need to pay tax as RD interest is less than Rs.10,000? 2) How do I declare the RD interest in the ITR form?
    I have FD made for short duration & interest Rs.850 accrued in the month Apr 2015, for this I need to declare in ITR for this year? Please reply.

    • Dear Haribaskaran,
      Whether TDS is deducted or not, interest earned on FD/RD is taxable. Yes, you have to include the interest income under the head 'Income from other sources' in ITR form. The April's interest income has to be included in ITR form of AY 2016-17, not now.

  • Dear Sreekhant,

    Please kindly read my situation and offer your thoughts/advice:

    I have 25,00,000 rupees I deposited in FD NRO account in July 2014 in State Bank of India. This FD is due to mature later in 2015. It is cumulative and the order is to repay principal and interest upon maturity. Also, I am US Citizen. I do not live in India so am NRI.

    When I checked my 26as statement, only 300 rupees had been deducted at source on 12/31/14 and credited to Income Tax Dept. When calling SBI, I asked why they haven't deducted 30.9% and why interest is not showing as accumulated in my FD. The response was that all that will be done at maturity. My question is, however, what will the Income Tax Dept think of this. I have read elsewhere that I am responsible for tax "accrued" on this FD, even if interest has not yet paid, and if that is the case, then my calculation shows approximately 125,000 INR was my tax liability for 2014. This is less than the exemption limit, so ultimately I owe no tax and can claim refund. But with no TDS put in the IT Dept by SBI bank in the first place, will I be seen as someone who was delinquent? I am probably going to choose to follow a cash method of accounting to deal with this, as it seems that I will see interest and taxes as when they are actually received/paid on my statements, but then I do not understand my tax liability to IT if I choose that route. Finally, all of this puts a monkey wrench in the foreign tax credit issue, as I can only request credit for the year taxes apply.

    As someone who lives in USA, this has become a headache for me, and I hope you can clear up my confusion. Please tell me what you think I should do here.

    • Dear Amit,
      Tricky situation.
      Just try this suggestion..tell them you would like to close the FD a/c and shift to some-other bank :) .
      You can show the accumulated interest on your FD during the financial year in which the FD mature.

      • Lol Sreekanth, I thought you would tell me more how to solve this :)

        I want to stay with SBI. I am not understanding your suggestion to find some other bank. Is SBI doing it incorrectly? But then you also advise that I can report accumulated interest in year it mature, so it seems you are saying that they are doing it correct. Are they right or wrong with their procedure?

        Now I am more confused.

        • Dear Amit,
          My point was not to confuse you :)
          I just said that if you inform them that you are going to move the funds, they may issue TDS certificate.
          As far as I am aware, banks have to deduct TDS (if any) on a quarterly basis and deposit the amount to IT department. They issue TDS certificate after the end of Financial year.
          From individual point of view, we can either pay income tax (if any) on the interest income on annual basis or on maturity. But, suggest you to include the interest income annually and pay taxes (if any) .

          • Lol Sreekanth, that was funny! The old "take my business elsewhere" threat always works! Anyway, I did finally get Form 16A, and it matches Form26as. But if I file India Tax Return reporting "accrued" interest and/or taxes, won't doing so automatically create a Tax Notice?

            Sreekanth, you confused me again, I'm sorry. In your first response, you told me:

            "You can show the accumulated interest on your FD during the financial year in which the FD mature."

            But in the second response, you say:
            "...But, suggest you to include the interest income annually and pay taxes (if any)"

            Please talk more in detail about the difference between the two, perhaps giving examples with hypothetical numbers. I'm quite sure that there are hundreds of thousands of NRIs out there with the same burning questions...and we would all be quite grateful if you wrote an article directed to helping this specific group of investors.

            Thank you again for your guidance :)

          • Dear Amit,
            There are two methods of accounting i)mercantile & ii) cash basis (I have quoted this in the article too).
            As fare as I am aware, the Tax law says that the investor can choose either of the two for declaring interest income.
            Though they provide the option, my suggestion is to follow mercantile system that is showing the interest income (accrued though not paid) every year and pay taxes accordingly. This will avoid getting tax notices too.
            So, what made SBI to issued TDS certificate now (Form 16a)?

          • I think it is because I contacted State Bank of India "NRI services" here in US and they sent my branch in India an email requesting the same. The 16a was forwarded to my email within a few days. I do not think anything nefarious is going on, as it is the same details as what I can see in Form 26as. But it is strange the hassle with this. Anyway, in order to stay in the lower income slab, I will probably report accrued interest when I file my India return, apparently before August 31 now since deadline has been extended by New Delhi. Reporting accrued is required in US on CDs, and since FD is essentially a CD too, I think it is wise to follow same accounting in both countries. I hope I don't get a tax notice for not matching Form 26as when I report that accrued interest, but I also read in the FAQ of IT Department that there will be no adverse consequences faced by deductees when payer fails to deduct TDS. They will not be held in default, and there seems to be a lot of leeway offered to banks for not paying quarterly or yearly. IT says they can pay in the following year even!

          • Dear Amit,
            Good to know that the issue has been sorted out. Thanks for sharing the update. It might be useful for other blog readers. Keep visiting!

          • You have the best blog, you are one intelligent man! Will definitely visit often!

            Anyway, I have the same questions as one other questioner asked, I posted above in that thread. TTYL :)

  • hi sir
    i made a fixed deposit in May 2013 for 1year , for that i got intrest of 9308 Rs(on may 2014). I renewed it for 1 more year (i.e; may 2014 to may 2015) for which i have to get 19483 Rs , as its more than 10000 Rs i have to file 15G but i forgot to file it before march 2015 & submitted 15G in may 2015 ( before FD's Maturity) . But they deducted 1775 Rs & 238Rs as tax on intrest in month of 31st March 2015. When i enquired for that in bank , they said that tax has been deducted in march itself so we can't refund it to you, & they said you can get back that deducted amount by filing ITR. But i don't know how to file ITR & Which ITR Form i have to file( i am individual having income form salary & FD intrest only). I am not tax payer as i am having Income from salary less than 2.5lakh. please help me on this.

    • Dear Sameer,
      You can use ITR 1 form (SAHAJ form) and get back the TDS amount as REFUND. The Income Tax Department has lot of resources on how to file taxes.
      You need to have your Form-16 & Bank's TDS certificates to file the ITR. As of now the new ITR forms are not yet available, these may be available by 3rd week of June and it is better if you file your taxes before July 3st.
      IT dept website : incometaxindiaefiling.gov.in/

      • thank you sir, 1)But how to get Form 16 , i came to know that it will be issued by employer to there employee, which includes Tax deduction details for particular year. if its right, then my employer is not deducting any taxes except professional tax & PF only , my annual income is 2.4lakh. so please guide me if i am wrong.
        2) i gone through website incometaxindia.gov.in i got ITR1 form in excel format. is that one is old form,

        • Dear Sameer,
          You can get Form 16 from your employer (irrespective of quantum of income). Yes, new ITR forms are not yet available.

          • No dear Sameer... wait till third week of June for the new ITR forms. You can file it before last week of July.

          • hi sir,
            is its necessary to provide details of my all FD to my employer, so that they can include in FORM 16. i dont know thats why i am asking.

          • Dear Sameer,
            No, no need to provide. You can include the interest earned on FDs as "income from other sources" in your Income Tax Returns Form (ITR).

  • Dear Sreekanth,

    I have a Query.Suppose if i Invest Rs.10,000 every month in RD for Next 10 years.What all the Taxes i should pay for this.
    Also during the Maturity of the Amount,whether any Tax need to be paid.
    Kindly guide me.

    • Dear Balachandran,
      Every year you need to pay income tax (as per your tax slab rate) on RD's interest amount (Int earned during a specific financial year). If you pay income taxes on annual basis then no taxes are applicable on maturity amount.

  • Dear Sreekanth,

    I am a retired SC. I have a FD which earns less than Rs 10000 interest. In the same branch I also have RD which earns more than Rs 10000 interest.

    Will these Two interest be treated separately for TDS i.e, since int on FD is less than 10000 there will be no TDS on FD and TDS will be deducted only on RD interest which is more than 10000, or they will be combined and TDS will be deducted on total interest earned on FD+RD.

    Thus while submitting 15H, do I need to submit it for only RD or for both RD and FD?

    Kindly clarify.

    • Dear Mahesh,
      I believe that bank may combine all the interest payments based on your PAN and accordingly TDS is deducted.
      Suggest you to submit Form 15 H for both the accounts?
      Are you a tax assessee?

  • Sir,
    My name is Rachel Prakash. I am a teacher, and a first time investor.

    First of all thanks a lot for simplifying all aspects related to tax and investment. I have read through several websites to gain understanding on these tricky issues, and yours is the only websites which talks in common man's terms.

    • Dear Rachel,
      Thanks for your appreciation. Keep visiting and do share my articles with your friends :). Thanks!

  • Sir,I am a retired senior citizen.I would like to invest Rs.45,000/-as FD for 3 years in NBFC.According to you,
    where should I invest it to get attractive interest rate as well as safety purpose with having high cricil rate?
    please,advise me.

  • This move by the government is utter foolishness. Having no guts to collect income tax from tax evaders, government is trying to collect TDS from investors, who have already paid tax on their income and then saving. In case of RD, at each stage of deduction of tax at source, maturity amount of that RD gets adversely effected and the maturity amount becomes substantially reduced and the rate of interest may even become less than SB rate(Some banks are paying 7 % on SB account)
    No person having sense will invest in RDs if this is implemented. A good financial adviser is lagging in the ministry of Finance and Income Tax department. KLet them go to a person purchasing Innova car by paying full amount by cash and they will find 100 times more tax evaded by such persons.

    • Dear Mandagaddeshankar,
      I disagree with your views on "TDS & RD". Without TDS also, an investor is liable to pay taxes right? He/she has to include the interest income in Income Tax Returns and has to pay the taxes as per income tax slab. It is just that Govt has made RDs on par with FDs with respect to TDS. Kindly share your opinion..

      • Dear Sreekanth,

        Don't you think there is a point in what Mr Mandagaddeshankar says about maturity value of RD. If TDS is deducted, the amount that earns interest is reduced to that extent as soon as TDS is deducted, so, every TDS will successively reduce amount on which interest is earned and also in turn interest earned and will reduce maturity value substantially. This will reduce yield to a good extent.

        Thus it is highly unfair to a person who is not eligible to submit 15G 0r 15H and will deter One from investing in FD or RD.

        Your comments please.

        Thanks.

        • Dear Mahesh,
          If TDS is not applicable, does not mean that there is no tax liability right?
          If an individual does not have taxable income, and in case bank(s) deduct TDS, that person can claim the refund by filing Income Tax Returns. (or) He/she can submit Form 15 G or H. Hope you got my point??

      • PNB & Central Bank of India are having Flexi recurring deposit schemes. In these schemes though flexi RD is of 5 years period, there is no need to deposit installment every month. In this account we can deposit 9 times monthly installment amount in a month. A number of accounts can be opened by a person. A person who is retired and he received at the time of retirement Rs. 50 lakh as Provident fund, Gratuity, Leave encashment at the time of retirement. He deposited entire amount in flexi recurring deposit. because earlier Income tax on interest on RD was allowed to pay on maturity. Now Bank would deduct 10% TDS on Interest. The interest on RD is required to be added to Income. Thereafter, if depositer is in 20% tax slab, he is required to pay additional 10% towards Income tax. Since he has deposited entire saving in Flexi RD, where from he would bring money to pay additional Income tax on 10% amount of Interest

        In case the depositor is in 20% tax slab, Bank would deduct 10% Income tax. But where from he would bring fund to pay remaining 20%
        ed by one person in

        • Dear Bhole,
          Just because a person has invested all his/her savings, does not mean he/she can escape to pay taxes. You need to plan your taxes, no other go.
          Death & Taxes are certain.

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Sreekanth Reddy
Tags: FDFD taxesFixed DepositsFY 2018-19 Section 80TTBinterest income on recurrind depositis RD interest taxableLatest post office interest ratesPopular Investment OptionsRDRD interest in ITRRD on minorRD taxesRecurrind depositstaxes on RD maturityTDS on RDTDS on recurrind deposits
July 10, 2023

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