As result of new proposal in the Union Budget
2015-16, Banks and Post Offices will have to deduct the 10% of the interest on
Recurring Deposits (RD) as TDS from 1st June 2015 onwards. The TDS will
be applicable only if the interest earned on RD accounts exceeds Rs. 10000/- a
year.
Interest
earned on deposits in cooperative banks has also been brought under TDS.
Earlier there was no TDS for Recurring Deposits in all institutions, only
interest on fixed deposits was taken for TDS calculation.
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.
The rules for applicability of TDS on interest
income from bank deposits have also been changed. Earlier, TDS was applicable
if the interest earned on deposits in a particular branch of a bank was more
than Rs. 10,000 in a year. Now, the branch restriction has been removed. The
total interest on multiple deposits at different branches of the bank would now
be considered together for the purpose of calculating TDS.
This new rule will make impact on investors
who makes deposits in different branches of a particular bank in order to
escape from the TDS.
These new proposal will make impact on the
business of the banks and Post Offices who deals with large number of RD
accounts. Because if the TDS is collected from a depositor, he will have
include this interest income as part taxable income in his Income Tax
returns. Otherwise mismatch will be happened since the TDS has been
linked with his PAN.
Income Tax on such interest on RD accounts
would be levied as per the Income Tax Slab Rates of the person receiving the
interest. The current income tax slab rates can be divided into the Nil
category, 10% category, 20% category and the 30% category.
The person receiving the Interest on RD cannot
claim any deduction on the same and tax would be levied on the full interest
amount as compared to Interest on Savings Account on which a deduction of Rs.
10,000 is allowed.
