Recurring bank deposits are one of the popular investment options for a large segment of the population. It is a special kind of deposit offered by banks and post offices in which investors deposit a fixed amount every month into their accounts. Some banks offer recurring deposits for tenures of up to 10 years.
From June 1, 2015, recurring deposits have come under the provisions of TDS. As a result, if interest earned on recurring deposits exceeds Rs 10,000 a year, TDS at the rate of 10 per cent would be deducted by the bank. Earlier, only fixed deposits were under the ambit of TDS.
Investors with no taxable income will have to submit Form 15G to avoid TDS on both recurring deposits and fixed deposits. For senior citizens, the requisite form for avoiding TDS is 15H.
Many investors have a misconception that there is no need to report the interest income in tax returns if the bank has deducted TDS. If you fall in higher tax brackets of 20 per cent or 30 per cent you have to pay higher tax on the interest income. Investors who don't fall under the basic exemption limit can file the return to get back the TDS deducted.
Interest income from recurring and fixed deposits are added to one's income and taxed accordingly to the respective slabs.
The tax department has advised tax payers to collect correct details of interest received or credited.
"Interest income should be shown in the return of income even in cases where Form 15G/15H has been filed if the earning is not exempt under Section 10 of the Income-tax Act and the total income of the person exceeds the maximum amount not chargeable to tax," the tax department said in a circular.
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