Recurring Deposit is one of the popular form of term deposit in India. Earlier TDS (Tax deducted at source) was not applicable to Recurring deposits but 2015 union budget proposed all the term deposits (including RD, FD etc) would cover under TDS and 10% of the interest earned will be deducted under Section 194A.
This new change will take effect from 1 June 2015. Same like FD no TDS will be deducted on interest earned up to Rs. 10,000 for recurring deposits, and for the company FD no TDS for the interest earned up to Rs 5,000.
Till last year, the investors had the option to open FDs at multiple branches of a same bank to avoid TDS, but budget proposed that combined interest earned from all branches of a same bank exceeds Rs 10,000 in a year would fall under TDS deduction.
Ways to avoid TDS on recurring deposit and fixed deposits
- Open deposits in family member’s names: Open deposits in the name of your parents, wife etc. (whose tax slap is Nil) to avoid TDS deduction.
- Open deposits in multiple banks: One can open RDs in different banks, for example if a investor is plan to invest 1 lakh in a year, he can choose two different banks to invest Rs. 50,000 each
- Form 15G/15H: Investors can submit Form 15G, if the total income is below the basic tax exemption limit, then the Bank would not deduct any TDS on the interest. Senior Citizen’s whose estimated income is nil even though the total income from various deposits may exceeds the tax limit, can submit form 15H to avoid TDS deduction.
How to claim refund on RD and FD’s TDS deduction
If Investor has nil tax liability, then he/she can claim the refund by filing the income tax return, currently there is no separate application form for this. An Investor needs to attach the proof for the deducted TDS amount for tax refund.
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