Tax on RD Interest: TDS Rules Explained
Understand how RD interest is taxed, TDS rules, Form 15G/15H submission, and how to report RD income in your tax return.
Recurring Deposit interest is taxable, but understanding the rules can help you plan better. When is TDS deducted? How do you report it? Can you avoid TDS?
Here's everything you need to know about RD taxation.
RD Interest Taxation Basics
How RD Interest is Taxed
| Aspect | Rule |
|---|---|
| Tax type | Interest income |
| Tax rate | Your income tax slab rate |
| Taxable when | On accrual (each year), not just at maturity |
| TDS applicable | Yes, if interest exceeds threshold |
Calculate your RD returns: Use our RD Calculator.
Taxation Example
5-year RD: ₹10,000/month at 7%, 30% tax bracket
| Year | Interest Earned | Tax at 30% | Net Interest |
|---|---|---|---|
| Year 1 | ₹4,165 | ₹1,250 | ₹2,915 |
| Year 2 | ₹12,805 | ₹3,842 | ₹8,963 |
| Year 3 | ₹22,345 | ₹6,704 | ₹15,641 |
| Year 4 | ₹32,835 | ₹9,851 | ₹22,984 |
| Year 5 | ₹44,332 | ₹13,300 | ₹31,032 |
Pre-tax maturity: ₹7,16,482 After-tax effective return: ~5% (instead of 7%)
TDS on RD Interest
TDS Threshold
| Category | TDS Threshold | TDS Rate |
|---|---|---|
| Regular individuals | ₹40,000/year | 10% |
| Senior citizens (60+) | ₹50,000/year | 10% |
| Without PAN | ₹40,000/year | 20% |
TDS applies when total interest from a bank exceeds threshold.
How TDS is Calculated for RD
| Important | Details |
|---|---|
| Interest computed | On accrual basis |
| TDS deducted | When interest is credited |
| Combined with FD | All deposits in same bank counted |
TDS Example
You have at Bank XYZ:
- RD interest (year): ₹25,000
- FD interest (year): ₹20,000
- Total interest: ₹45,000
| Threshold | ₹40,000 |
|---|---|
| Excess | ₹5,000 |
| TDS deducted | ₹4,500 (10% of ₹45,000) |
TDS is on entire interest once threshold is crossed, not just excess.
How to Avoid TDS
Form 15G (For Non-Senior Citizens)
| Eligibility | Conditions |
|---|---|
| Indian resident | Yes |
| Age | Below 60 |
| Tax liability | Nil (income below taxable limit) |
| Estimated income | Below basic exemption |
Submit Form 15G at start of financial year to avoid TDS.
Form 15H (For Senior Citizens)
| Eligibility | Conditions |
|---|---|
| Indian resident | Yes |
| Age | 60 years or above |
| Tax liability | Nil (tax payable is zero) |
Senior citizens can submit 15H even if income is above basic exemption, as long as tax payable is nil after deductions.
Form Submission Process
| Step | Action |
|---|---|
| 1 | Obtain Form 15G/15H from bank (or download) |
| 2 | Fill declaration details |
| 3 | Mention estimated income and deposits |
| 4 | Submit to bank before interest credit |
| 5 | Submit to each bank separately |
| 6 | Renew every financial year |
Important Notes on 15G/15H
| Rule | Details |
|---|---|
| Submit annually | Every April |
| Submit to each bank | Separate for each |
| False declaration | Penalty applicable |
| If tax liability arises | You must pay tax in ITR |
Claiming TDS Credit
If TDS is Deducted
| Step | Action |
|---|---|
| 1 | Bank issues TDS certificate (Form 16A) |
| 2 | TDS reflects in Form 26AS |
| 3 | Report interest in ITR under "Income from Other Sources" |
| 4 | Claim TDS credit |
| 5 | Pay additional tax or get refund |
Checking TDS Deducted
| Source | How to Access |
|---|---|
| Form 26AS | Income tax portal → View Tax Credit |
| AIS | Income tax portal → Annual Information Statement |
| Bank statement | Shows TDS deducted |
| Form 16A | Request from bank |
Reporting RD Income in ITR
Where to Report
| ITR Section | Details |
|---|---|
| Income from Other Sources | Interest income |
| Schedule OS | Detailed breakup |
Information Needed
| Detail | Source |
|---|---|
| Bank name | Your records |
| Interest amount | Bank statement/certificate |
| TDS deducted | Form 26AS/16A |
| TAN of bank | Form 16A |
Reporting Example
Income from Interest:
- Bank A RD interest: ₹25,000
- Bank B FD interest: ₹30,000
- Savings account interest: ₹8,000
- Total: ₹63,000
Deductions:
- 80TTA (savings interest): ₹8,000 (max ₹10,000)
- Taxable interest: ₹55,000
Tax Saving Strategies for RD
Strategy 1: Stay Below TDS Threshold
| Approach | Implementation |
|---|---|
| Split across banks | ₹35,000 interest per bank |
| Family distribution | Deposits in spouse/parent name |
| Lower income member | Put RD in lower-tax-bracket family member |
Strategy 2: Use Tax-Free Alternatives
| Instead of RD | Consider | Tax Benefit |
|---|---|---|
| Bank RD | PPF | Tax-free interest |
| Bank RD | SSY (for daughters) | Tax-free interest |
| Bank RD | Tax-saving FD | 80C deduction |
Strategy 3: Time Your Maturity
| Tip | Benefit |
|---|---|
| Start RD in low-income year | Less tax on early interest |
| Maturity in low-income year | Less tax in final year |
| Post-retirement start | Lower tax bracket |
Senior Citizen Special Benefits
Section 80TTB
| Benefit | Details |
|---|---|
| Deduction | Up to ₹50,000 |
| Applicable to | Interest from banks, post office, co-ops |
| Includes | FD + RD + Savings interest |
| Age requirement | 60+ years |
Example: Senior Citizen
Interest earned:
- RD: ₹30,000
- FD: ₹40,000
- Savings: ₹5,000
- Total: ₹75,000
After 80TTB:
- Deduction: ₹50,000
- Taxable interest: ₹25,000
Effective tax rate much lower for senior citizens.
Common Mistakes to Avoid
Mistake 1: Forgetting to Report Interest
| Issue | Consequence |
|---|---|
| Not reporting RD interest | Mismatch with Form 26AS |
| Department notice | Potential penalty |
Solution: Always report all interest income.
Mistake 2: Not Submitting 15G/15H Timely
| Issue | Consequence |
|---|---|
| Late submission | TDS already deducted |
| Have to claim refund | Money stuck till ITR processed |
Solution: Submit in April for entire year.
Mistake 3: Wrong Form Submission
| Mistake | Issue |
|---|---|
| 15G when taxable | False declaration, penalty |
| 15H by non-senior | Invalid |
Solution: Verify eligibility before submitting.
Mistake 4: Ignoring RD Interest
| Assumption | Reality |
|---|---|
| "TDS deducted = tax paid" | May need to pay more or get refund |
| "Small amount, ignore" | AIS shows all income |
Solution: Include all interest in ITR.
RD vs Other Investments: Tax Comparison
| Investment | Interest Rate | Tax Treatment | Post-Tax Return (30% bracket) |
|---|---|---|---|
| Bank RD | 7% | Fully taxable | 4.9% |
| Post Office RD | 6.7% | Fully taxable | 4.7% |
| PPF | 7.1% | Tax-free | 7.1% |
| Tax-saving FD | 6.5% | Taxable (but 80C benefit) | 4.55% + tax saved |
| Debt Fund | 7-8% | Slab rate | 4.9-5.6% |
PPF gives better post-tax returns than RD for most people.
Quick Reference: RD Tax Summary
| Aspect | Rule |
|---|---|
| Tax type | Slab rate on interest |
| TDS threshold | ₹40,000 (₹50,000 for seniors) |
| TDS rate | 10% (20% without PAN) |
| Avoid TDS | Form 15G/15H if eligible |
| Report in | ITR - Income from Other Sources |
| Deduction available | 80TTB for seniors (₹50,000) |
Conclusion
| Situation | Action |
|---|---|
| Income below taxable limit | Submit Form 15G/15H |
| Senior citizen | Claim 80TTB deduction |
| Multiple bank deposits | Track combined interest |
| TDS deducted | Claim credit in ITR |
| Higher tax bracket | Consider PPF instead |
Key takeaways:
- RD interest is taxable at your slab rate
- TDS is deducted if interest exceeds ₹40,000 (₹50,000 for seniors)
- Submit 15G/15H to avoid TDS if eligible
- Report all interest in ITR regardless of TDS
- Senior citizens get 80TTB deduction of ₹50,000
- For high-tax-bracket individuals, PPF may be better than RD
Understanding RD taxation helps you plan better and avoid surprises at tax time.
Calculate your RD returns: Use our RD Calculator to see maturity value before and after tax.