Taxable as Income

• Yes, interest earned on a recurring deposit (RD) is fully taxable.
• It is treated as “Income from Other Sources” under income tax rules.
• The total interest must be added to the individual’s annual income.
• Tax is calculated based on the applicable income tax slab.
• There is no special exemption for RD interest.

TDS Deduction by Banks

• Banks deduct Tax Deducted at Source (TDS) on RD interest.
• TDS applies if total interest from all deposits exceeds ₹40,000 in a financial year.
• For senior citizens, the threshold is ₹50,000 annually.
• The TDS rate is 10% if PAN is submitted and 20% if not.
• TDS is deducted on interest accrual, not just at maturity

Reporting in Income Tax Return (ITR)

• All RD interest must be disclosed while filing ITR.
• Even if TDS is not deducted, interest is still taxable.
• Mismatch in reporting may lead to tax notices.
• The amount is shown under “Income from Other Sources.”
• Verify TDS through Form 26AS before filing returns.

Submission of Form 15G/15H

• Individuals below the taxable income limit can submit Form 15G.
• Senior citizens can submit Form 15H to avoid TDS.
• These forms must be submitted at the beginning of the financial year.
• If valid, the bank will not deduct TDS from RD interest.
• Incorrect declarations can attract penalties.

Impact on Final Tax Liability

• If actual tax liability is more than TDS, the balance must be paid while filing.
• If excess TDS is deducted, it can be claimed as a refund.
• Interest from post office RDs is also taxable under the same rules.
• No special deduction is allowed on RD interest under Section 80C.
• Keeping track of annual interest helps in better tax planning.