Recurring deposits attract TDS

The Union Budget presented by Finance Minister Arun Jaitley proposes to bring recurring deposits under the provisions of TDS (tax deducted at source). 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.

Recurring deposit 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.

The proposal to tax recurring deposits, a favourite saving instrument for salaried and middle class Indians, will come into effect from June 1.

Earlier, only fixed deposits in banks or post offices came 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.

Interest earned on deposits in cooperative banks has also been brought under TDS.

In another change, the rules for applicability of TDS on interest income from bank deposits have also been changed. Earlier, if interest earned on deposits in a particular bank branch was more than Rs 10,000 TDS was applicable. 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.

It will be “computed with reference to the income credited or paid by the banking company or the co-operative society or the public company, as the case may be, where such banking company or the co-operative society or the public company has adopted core banking solutions,” says the Finance Bill.

This move is likely to impact investors who have multiple deposits in different branches of a particular bank.

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