Now Pay TDS On Interest On Recurring Deposits

Updated: Tuesday, March 3, 2015, 15:34 [IST]

The Union Budget 2015-16 has altered the definition of Time Deposits to include Recurring Deposits. So, the rule governing Time Deposits would also be applicable to recurring deposits.

Now Pay TDS On Interest On Recurring Deposits

The big difference between the two has always been the TDS. While TDS was deducted on fixed deposits if the interest exceeded Rs 10,000, the same would now be applicable to recurring deposits.

The later was thus far prior to the Union Budget 2015-16 exempted from TDS. This meant that you could open a recurring deposit and invest large sums every month without any TDS.

You would have to show the interest income separately only when you were filing your tax returns. This option is now gone and there will be an immediate TDS on recurring deposits, unless you submit for 15G/H.

How TDS On A Recurring Deposit Would Be Calculated?

A recurring deposits is a deposit where a monthly sum is paid each month to enable savings in a systematic manner. For example, should you may choose to invest as much as Rs 10,000 each month for 24 months, you end-up saving Rs 2,40,000 over a two year period.

Now, if you earn Rs 12,000 as interest each year, then there was no tax deducted at source earlier. But, from now on, the bank would cut 10% of the interest earned, which means you would end-up paying slightly more then 10 per cent, because of other levies.

There is no way you can prevent TDS, unless you break the recurring deposit and invest the same in two separate banks. But, then that is not the right solution unless you are not filing income tax returns, because your income is lower then the threshold limit of Rs 2.5 lakhs.

Good Move By the Government

It is a sensible move by the government to include recurring deposits in the definition of Time Deposits. There was no reason to separate the two and include one set of deposit in the ambit of TDS and exclude the other.

To read More on How Interest Rates On recurring Deposits Is Calculated Click Here