Is interest earned from a recurring deposit taxable?

I have a bank recurring deposit (RD) for Rs 5,000 a month for the next seven years, which commenced in April 2013. At that time, there was no tax applicable, but now I believe the tax angle has come in. Please provide further information. - Vikas Juneja, Chandigarh

You are right; it is only recently that the tax deducted at source (TDS) provision has been levied on interest earned from an RD. From June 1, 2015, banks that pay interest on RD have been asked to deduct tax at source on the interest earned. Hence, TDS at the rate of 10 per cent is applicable if the interest income during the relevant financial year exceeds Rs 10,000.

The interest earned on RD is taxable under the head ‘income from other sources’. Even earlier, the interest earned on RD was taxed.

Normally, the deduction under Section 80TTA is available up to Rs 10,000 in a financial year against the interest earned on savings account with a bank or post office and interest on RD does not qualify for such deduction. It is for this reason that the entire interest earned on RD placed by you in your bank from April 2013 will be taxable at applicable tax rates in your hands for each of the financial years.

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