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How to calculate tax on recurring deposit?

Praveen Athanki (PM) (62 Points)

01 May 2012

Hi,

I have a recurring deposit running in a private bank.

Monthly installment - Rs.1000/-

Tenure - 60 months

Interest rate - 8.25%

1. What is the tax rate for income from RD account?

2. How to calculate the income on which the tax is to be paid as this is not straight forward as in the case of a FD?

Regards,

Praveen

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10 Replies

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 01 May 2012

If the interest paid on RD by the bank exceeds the limit of 10k, then the bank would make TDS on the interest paid. The total interest received by you, would be added to your total income & accordingly tax would be calculated at the rate as per the tax bracket. You will get the credit of the TDS made by the bank on the RD Interest.

A K Jain (Service) (160 Points)
Replied 01 May 2012

1) TDS is applicable only on FDs & if total interest is exceeded Rs 10K.

2) Bank will issue total interest certificate & same is to be added fully in taxable income.Accordingly self assessment tax is to be paid.

Rahul Gupta (Chartered Accountant) (644 Points)
Replied 01 May 2012

@ Parveen

1. There is no specific Tax Rate on income from RD Interest. It will be added to your Gross Income under the Schedule OS (Other Sources) and will be taxable as per your Tax Slab.

2. In order to clarify regarding the TDS Provisions by Bank on Interest is that Bank will deduct TDS @ 10% on Total interest credit to all Accounts of a Holder if it exceeds Rs. 10K during the Year in a Single Branch. Any interest earned by holder in 1 branch has nothing to consider any interest earned through another branch even of same bank. TDS will be attracted not only on FD's but it cover all type of Accounts on which the interest is credited by Bank i.e. SB A/c, RD A/c, TD A/c, SCSS A/c, etc.

3. In case the holder doesn't furnish the PAN the TDS will be deducted @ 20 %.

4. Now come to the point on Calculation of interest on RD A/c

Let me tell you that you haven't provided the complete details, you told that the interest is 8.25% irrespective of the details that whether it is Annual Interest, Compounded yearler, Half Yearly, Quarterly or Monthly. Generally bank provides Compounding Quarterly. But it differs from Bank to Bank.

To calculate interest, i have assumed that the interest provided is Simple Per Annum Interest.

Total Interest Earned:

Installment X No. of Installment X Interest Rate P.A. X No. of Years

100 X 2

i.e. Rs. 1000 X 60 X 8.25 X 5 = Rs. 12375/-

100 X 2

Total Maturity Value = Rs. 6000 (principal) + Rs. 12375 (interest) = Rs. 72375/-

CALCULATION WILL BE DIFFERENT IN CASE OF COMPOUNDING YEARLY, H.Y., QRTLY, MONTHLY, ETC.

Hope you understand the concept with this illustration.

2 Like

Praveen Athanki (PM) (62 Points)
Replied 02 May 2012

Thank you all. All your answers were very helpful especially the one from Mr. Rahul Gupta

Regards,

Praveen

(Guest)

interest credited to RD a/c will be entered in passbook... it may help you to arrive income on RD,

A K Jain (Service) (160 Points)
Replied 02 May 2012

Bank deduct TDS only on FD a/cs & not on interest earned in saving or R/D a/cs (but total interest of all type of a/cs is taxable upto last FY). Although in case of NRO a/cs ,TDS is applicable for all type of a/cs since last FY.

Rahul Gupta (Chartered Accountant) (644 Points)
Replied 02 May 2012

@ A K Jain

You are right sir, after your post i have read Sec. 194A in detail in which i found the Bank will deduct TDS only on Time Deposits (FD) as the other deposits are exempt u/s 194A(3)(vii)

However i am unable to justify your word SINCE LAST F.Y. because under the above mentioned section it is mentioned as follows:

Section 194A (3)

[(vii) to such income credited or paid in respect of deposits (other than time deposits made on or after the 1st day of July, 1995) with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);

here the last applicability ends on 01 July, 1995. Could you please justify it.

A K Jain (Service) (160 Points)
Replied 03 May 2012

For NRO type a/cs (for NRIs) ,RBI has issued guidelines to deduct TDS since last FY.

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 12 December 2012

There's no TDS applicable on RD's. The interest paid during the year is added to the taxable income of the assessee and the assessee needs to pay tax as per the slab rates. Interst is paid by the bank on the RD's whihc varies between 8-9 percent and it is taxable.

TDS is applicable only on FD's & exemption on SB accounts is available upto 10000/-. If the interset on SB accounts exceeds 10k then it will be added to teh taxable income & tax will be calculated accoridngly.