With Recurring Deposits (RDs), investors can invest on a monthly basis for a period ranging from 6 months to 10 years, and get returns. You can better plan your investment by reading this article.
RDs or recurring deposits are a type of term deposit where you can invest a fixed amount every month and get returns at the end of the tenure. Here are some salient features of an RD -
The investment amount ranges from Rs.1,000 to Rs.10,000 monthly.
Interest rates applicable on RDs are comparable to Fixed Deposits (FDs), which are provided by Indian banks and other financial institutions.
Investors can choose a tenure ranging from 6 months to 10 years, allowing them to accumulate interest over a predetermined period that is compounded quarterly.
The option to link an RD account to a savings account allows interest payments to be issued directly to the savings account.
Similar to FDs, recurring deposits give senior citizens an additional rate of return of roughly 0.80% p.a. over and above the standard rates.
Individuals can open an RD account at any post office, bank, or other financial institution.
They can also monitor their interest income on the go by using passbooks, bank account statements, or net/mobile banking channels.
The interest earned on the principal from RDs is taxable. It doesn’t come under Section 80C benefits and will be taxable under "Income from Other Sources".
10% TDS will be deducted if interest income on RDs is more than Rs.40,000 for the general public and Rs.50,000 for senior citizens in a financial year. Please note that PAN submission is mandatory to avoid a higher 20% TDS deduction.
Even though RD is taxable, there are ways you can avoid the taxes. Read how you can do so -
Form 15G for a non-senior citizen, or Form 15H for senior citizens, can be filed to avoid a TDS deduction if the total income is less than the taxable limit.
Alternatively, investors can register an RD account on behalf of their parents, wife, or minor, whose income is NIL or lower than the tax slab.
There is no TDS if the interest you earn on your single RD is Rs.10,000 or less in a single financial year.
Investors can apply for a tax refund if the TDS deducted exceeds their total tax liability for a given fiscal year.
You can get Form 16A from your bank branch, which illustrates the TDS deduction on your RDs, prior to completing your Income Tax Return (ITR) to avoid any mismatch.
Recurring deposits are subject to TDS or Tax Deducted at Source, just like fixed deposits or any other type of savings product.
Investors need to report their RD interest income in their Income Tax Return (ITR) to avoid penalties. Some crucial factors related to recurring deposits include submitting a valid PAN, applying for Form 15G/H, claiming refunds, and calculating taxable income.
The tax exemption limit for RDs is Rs.40,000 for the general public and Rs.50,000 for senior citizens.
Non-senior citizens can file Form 15G while senior citizens can submit Form 15H to minimize TDS on recurring deposits.
If a PAN Card is submitted, 10% of interest income will be subject to a TDS deduction. If PAN is not submitted TDS rate will be 20% under the Finance Act, 2015 effective from June 1, 2015.
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