How is Income Tax calculated for RD interest

POSTED BY jibi ON October 29, 2013 4:16 pm COMMENTS (6)

Hi all,

I have a query on tax payment/management on interest earned through RD as follows:

I understand that there is no TDS for the interest earned on RD in a bank and paying the tax is the investor’s responsibility. The query is, If the RD spans for more than 2 or 3 Financial Years, then, is there an option of paying the tax at the end of the tenure (on maturity) or it has to be paid yearly on accrual basis similar to  that for term deposit interests of more than 1 year?.

Your valuable opinion will be highly appreciated.

Thanks & regards,

GBanari

6 replies on this article “How is Income Tax calculated for RD interest”

  1. Gagan says:
    October 29, 2013 at 9:23 pm

    There is no TDS collected on RD..

    TDS is only collected on FD.

    Reply
    1. gbanari says:
      October 30, 2013 at 10:22 am

      Thanks Gagan for your interest on the topic. But it didn’t answer my query
      Rgds,
      GBanari

      Reply
      1. Ashish Garg says:
        October 30, 2013 at 1:02 pm

        Hi Gbanari,

        Income tax on interest on RD account is calculated on accrual basis during the FY. You may ask your bank for the same and they can give you a statement in which interest is shown on accrual basis. Else you may use MS excel and create a work sheet your self to see how much interest shall be generated in each of the FY.

        Regards,

        Ashish

        Reply
        1. gbanari says:
          October 30, 2013 at 2:24 pm

          Hi Ahish,
          Thanks for the info. Does that mean the option of paying the tax at the end of the tenure (on maturity) is not available or not allowed?
          Rgds,
          GBanari

          Reply
          1. Ashish Garg says:
            October 30, 2013 at 3:28 pm

            Hi Gbanari,

            You can pay the tax on maturity as well, but then in that case you shall pay bigger amount in one financial year whereas if you pay in parts it will be divided among 2-3 yrs (as the tenure of RD). Also, what happens if the tax brackets changes in the coming Financial Years, you may end up paying more tax.

            Consider, if you are in 20% bracket today and next year you move to 30% bracket or let’s say next FY, the tax bracket changes to 35% in highest tax segment or something… you never know what our beloved Finance Minister can propose or do 😉

            Regards,

            Ashish

            Reply
            1. gbanari says:
              October 31, 2013 at 9:56 am

              Hi Ashish,
              Thanks for the reply & clarification. In some cases opting for paying tax after maturity may be beneficial should the tax bracket reduce from higher to lower.
              Thanks & rgds,
              GBanari

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