Recurring Deposits are a popular investment option. They serve as a secure and systematic way to save money over time. An important factor that makes them attractive is the interest earned on their deposits. However, if you do not know much about the same and the applicable taxation policies, here is a quick guide covering relevant information.
RD interest rates
RD interest rates play a crucial role in determining the growth of your savings. They are set by the bank where you hold your RD Account. They are subject to periodic revisions. The following are other things you need to know about them:
- Varied rates across banks
Different banks offer varying RD interest rates. Compare them before opening an RD Account. That way, you can enjoy the best possible return on your investment.
- Fixed or floating rates
Some banks offer fixed RD rates, which remain constant throughout the tenure of your Term Deposit. Others may provide floating rates that change periodically, usually per market interest rates.
- Senior citizen benefits
Many banks offer senior citizens higher RD interest rates as an investment incentive. These rates can be significantly more attractive than standard rates. Hence, you should consider this investment facility if you are a retiree. However, compare the interest rates different banks offer through their websites or Banking Apps.
- Tenure and interest rates
The tenure you choose for your RD can also affect the interest rate. Longer tenures may offer higher rates, motivating you to commit to more extended savings periods.
Taxation of RD interest
Understanding the tax implications of the interest earned on your RD is essential for effective financial planning. Here is how taxation works concerning the same:
- Tax Deducted at Source
Banks deduct TDS on the interest earned from your RD if it exceeds Rs. 10,000 in a financial year. For senior citizens, this limit is Rs. 50,000. The current TDS rate is 10%. However, it may change based on government regulations.
- Tax slab
The interest earned on your RD is taxable per your applicable income tax slab. For instance, if you fall in the 20% tax bracket, you need to pay 20% tax on the interest income.
- Claiming tax benefits
RDs do not offer specific tax benefits or deductions like other investment options. These include Public Provident Funds or Tax-Saving Fixed Deposits.
Tips for tax-efficient RD investments
- Plan your investments
If you are liable for TDS, plan your RD Investments strategically. This ensures the interest income does not exceed the TDS threshold.
- Diversify your investments
Consider diversifying your investments across various instruments to optimise tax efficiency. Explore options like Tax-Saving Fixed Deposits, PPF, Savings Accounts, and Tax-Saving Mutual Funds.
- Keep records
Maintain accurate records of your RD interest income and TDS deductions for tax filing purposes. This ensures compliance with tax regulations
