In the Budget for 2015 some changes have been announced regarding interest earned on Recurring Deposits.
What are Recurring Deposits? Recurring Deposits are a special kind of Fixed Deposits. Almost like making FDs in installments instead of a lump sum. You can open a RD account and make periodical transfers to your RD account from your monthly income. This helps you set aside some money regularly to the RD account and earn an interest higher than a savings account.
Changes in Budget 2015 for RDs
- TDS shall be deducted on interest income from RDs
- TDS shall be deducted when interest income from all the branches of the Bank exceeds Rs 10,000 in a financial year. (Earlier, TDS was deducted when interest income exceeded Rs 10,000 in a financial year from one branch).
When is the change effective? This change is effective 1st June 2015.
What really changes? Interest earned on RDs has always been fully taxable. Just like FD interest income and savings account interest income it gets added to your Income from Other Sources. Earlier there was no TDS on RD interest and now TDS shall be deducted at 10%. If you fail to provide PAN information TDS shall be deducted @ 20%.
So effectively nothing changes if you have already been offering your RD interest income for tax. Since RD interest gets added to your total income it is taxable at the slab rate applicable to you. If your total income is below the taxable limit you should submit form 15G and form 15H to the Bank and request that no TDS should be deducted. (Do note that deduction of Rs 10,000 under section 80TTA is available on interest on savings account and NOT on interest income from FDs and RDs)
What is the purpose of TDS then if nothing changes? When Tax is deducted at source it helps the IT department bring more and more people under the tax net. So the IT Department takes TDS deduction & defaults very seriously. Earlier some could get away with having FDs and RDs in separate branches and escape TDS if it does not aggregate to Rs 10,000. But from now on – the interest on deposits from all the branches of a bank shall be summed up to check for TDS deduction eligibility.
If you have not been adding RD interest income to your total income for whatever reason – there is no escaping this now!