Recurring deposits, also known as RD, refer to a type of investment product offered by banks. These are investments designed to help customers build capital over a set period of time, usually six months or 10 years. Taxation of these deposits is governed by the Income Tax Act of 1961 and is subject to the TDS as well as income tax slab based on the income earned.
Recurring deposits are generally subject to the same taxation rules as other fixed-income investments. Tax is applied at the investor’s marginal rate depending on their individual income tax slab. TDS applies on recurring deposits with interest earnings of Rs. 10,000 or more in a financial year. Further, taxpayers can claim indexation benefits if the investment has been held for at least three years.
Tax Treatment of Recurring Deposit Account Returns
Who Is Eligible To Benefit From The Taxation Of Recurring Deposits:
Any person with a valid and active PAN Card, Hindu Undivided Family (HUF), Association of Persons (AOP) and Body of Individuals (BOI) are eligible to benefit from the taxation of recurring deposits. Other eligible entities may include partnership firms, companies, and trusts.
Tax Liabilities of Recurring Deposit Returns: The tax treatment of recurring deposit returns differs based on various parameters like the deposit’s tenure, the deposit’s residential status, and the amount of interest earned. When it comes to non-senior citizens, the interest earned on a recurring deposit is fully taxable under the heading “Income from Other Sources”. Senior citizens are, however, exempt from tax up to an amount of INR 50,000 or the interest earned, whichever is lower. If the interest earned exceeds INR 50,000, then the same is taxed at the applicable slab rate.
Exemptions Available on Recurring Deposit Returns: The Government of India provides certain exemptions to the returns from recurring deposits. These include the benefits under Sec 80C of the Income Tax Act, 1961, where an investor can avail of tax deductions up to an amount of INR 1,50,000 in a financial year with the total deduction amount not exceeding the income tax slab. Additionally, one can avail deductions under Sections 80DD, 80DDB, 80U, and other Sections as per their eligibility.
Benefits of Taxation of Recurring Deposit Accounts
The top three benefits of taxation of recurring deposit accounts are:
- Taxation of Recurring Deposit Accounts encourages individuals to save money, which in turn helps to increase a country’s savings rate and promote economic development.
- Taxation of Recurring Deposit Accounts can help reduce the gap between richer and poorer individuals as the tax revenue can provide essential services and financial support to the neediest individuals.
- Taxation of Recurring Deposit Accounts can help the government to raise money to fund public services such as infrastructure, health, and education, thereby improving the living standards of citizens.
Procedural Requirements for Filing Taxes on Recurring Deposit Returns
The process of filing taxes on Recurring Deposit (RD) returns can be complex and confusing for individuals who are not familiar with the process. Therefore, to ensure you maximise your returns and avoid any potential penalties, it is important to adhere to the procedural requirements as outlined by the tax authorities. Some of the most important procedural requirements to keep in mind when filing taxes on recurring deposit returns include the following:
Firstly, you must have all your financial documents related to your recurring deposits in order for the filing process. This includes your RD interest certificate as well as any other documents that the tax authority may require.
Finally, you need to ensure that you declare the accurate amount of income while filing taxes on the RD return for your income tax slab. You must report both the principal amount and the interest earned on the deposit to the tax authority. Also, be sure to declare any tax deductions you are entitled to receive per applicable tax regulations. Not declaring the correct amounts can lead to a higher tax liability or loss of benefits.
The taxation of Recurring Deposit Account returns is an important part of financial planning. The government collects tax on returns to ensure that citizens can contribute to the economy’s financial health. Knowing how to calculate and file taxes on recurring deposits is essential for those seeking to save and grow their money safely and securely. With careful planning and understanding of taxation rules, having a recurring deposit account can be a beneficial way to save and grow money.