RD Income Tax: Complete Guide to Interest, TDS & ITR Filing

A recurring deposit (RD) is one of the most popular savings instruments in India, especially among risk-averse investors who prefer a disciplined approach to building a corpus. However, many RD investors are unclear about the tax implications—both during the tenure of the deposit and at maturity.

This guide covers everything you need to know about income tax on recurring deposits in 2026: how RD interest is taxed, TDS rules, how to report RD interest in your ITR, and how to avoid unnecessary TDS deduction.

Looking for expert help with recurring deposit income tax, RD tax, TDS on recurring deposit, RD interest taxable, recurring deposit ITR filing? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.

Is Recurring Deposit Interest Taxable?

Yes, recurring deposit interest is fully taxable. The interest earned on an RD is treated as "Income from Other Sources" under Section 56 of the Income Tax Act.

The interest income is added to your total income and taxed at your applicable income tax slab rate—whether 5%, 10%, 20%, or 30%.

Key Points on RD Interest Taxability

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Accrual vs Receipt: When is RD Interest Taxable?

One of the most common mistakes RD investors make is waiting until maturity to report the interest. This is incorrect.

Interest on recurring deposits is taxable on an accrual basis—not on receipt. This means you must declare the interest that accrues in each financial year in your ITR for that year, even if you have not yet received it.

Example: Accrual Basis Taxation

Suppose you open a 5-year RD with monthly installments. The interest is calculated and compounded quarterly (or monthly depending on the bank). For tax purposes:

• Interest that accrues in FY 2025-26 must be reported in the ITR for AY 2026-27.
• Interest that accrues in FY 2026-27 must be reported in the ITR for AY 2027-28.
• And so on for each year of the RD tenure.

The correct approach is to compute interest on an accrual basis and disclose it annually in the ITR under the "Income from Other Sources" head.

Why This Matters

• If you report interest only at maturity, you may face a higher tax burden in that year.
• The bank may deduct TDS on an accrual basis, creating a mismatch between TDS deducted and income reported in your ITR if you do not declare the interest annually.
• Income Tax Department notices are often triggered by such mismatches.

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TDS on Recurring Deposit Interest

TDS Threshold Under Section 194A

Under Section 194A of the Income Tax Act, banks and post offices are required to deduct TDS on interest income when the aggregate interest from all deposits (FDs and RDs) with that bank or post office exceeds the prescribed threshold.

For FY 2026-27:

Important: The threshold applies to the aggregate interest from all your fixed deposits and recurring deposits with the same bank or post office—not per deposit.

TDS Rate

Example: TDS on RD Interest

Scenario: A general individual has:

• FD interest with Bank A: ₹25,000
• RD interest with Bank A: ₹20,000

Total interest with Bank A: ₹45,000

Since ₹45,000 exceeds the ₹40,000 threshold, the bank will deduct 10% TDS on the entire interest income of ₹45,000—not just the excess over ₹40,000.

TDS deducted: ₹45,000 × 10% = ₹4,500

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Post Office RD: TDS Rules

Post Office RDs are also subject to TDS under Section 194A.

• The same TDS thresholds apply: ₹40,000 for general individuals and ₹50,000 for senior citizens.
• TDS is deducted at 10% if PAN is provided.
• If PAN is not provided, TDS is deducted at 20%.

Key point: Post Office RD interest is taxable, but TDS is deducted only if the interest exceeds the threshold. The liability to pay tax on the interest exists regardless of whether TDS has been deducted.

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How to Avoid TDS on RD Interest (Form 15G / 15H)

If your total income is below the taxable limit, you can avoid TDS deduction by submitting a self-declaration to the bank or post office.

Form 15G (For Individuals Below 60 Years)

• Submit if your total income is below the taxable limit.
• Applicable to individuals, HUFs, and trusts (excluding senior citizens).

Form 15H (For Senior Citizens)

• Submit if you are 60 years or older.
• Available even if your total income exceeds the taxable limit, as long as your tax liability is nil.

How to Submit

1. Fill out Form 15G or 15H (one for each bank/post office where you have deposits).
2. Submit it to the bank or post office at the beginning of the financial year (or before the first interest credit).
3. If you have multiple branches or accounts, submit a separate form for each deductor.

Form 121 (New Simplified Form): With the implementation of the Income Tax Act 2025, Form 15G and 15H have been replaced by a simplified declaration form—Form 121—for certain cases.

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How to Report RD Interest in Your ITR

Schedule OS (Income from Other Sources)

RD interest must be reported in Schedule OS of your ITR under the sub-head "Interest from deposits" or "Other interest income."

Step-by-Step Process

Step-by-Step Guide

How to Report RD Interest in Your ITR

Follow these steps to correctly report recurring deposit interest

1

Gather Interest Certificates

Collect interest certificates from all banks and post offices where you have RDs. These show the interest accrued and TDS deducted during the financial year.

Documents

2

Calculate Total Accrued Interest

Add up the interest accrued on all your RDs for the financial year. Include interest from both banks and post offices.

Calculate

3

Check Form 26AS and AIS

Login to the Income Tax e-Filing portal and download Form 26AS and AIS. Verify that the TDS deducted by banks/post offices is correctly reflected.

Form 26AS

4

Open Schedule OS in ITR

In your ITR form (ITR-1, ITR-2, ITR-3, or ITR-4), navigate to Schedule OS (Income from Other Sources).

Schedule OS

5

Enter Interest Income

Enter the total accrued interest from all RDs in the relevant field (e.g., 'Interest from deposits' or 'Other interest income').

Enter Income

6

Claim TDS Credit

The TDS deducted will be automatically reflected in your ITR from Form 26AS. Ensure the TDS amount matches your records.

Claim TDS

7

File and E-Verify

Complete your ITR and e-verify it. If TDS exceeds your tax liability, a refund will be processed.

File

Source: Income Tax Department e-Filing portal (incometaxindia.gov.in); Moneycontrol; Mint

Which ITR Form to Use?

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Tax Treatment at Maturity: Principal vs Interest

At maturity, only the interest component of the RD is taxable. The principal amount is not taxable.

Example: Maturity Taxation

Important: No Double Taxation

If you have already declared the accrued interest each year, you do not have to pay tax on the full amount again at maturity.

However, if you did not report the accrued interest in previous years and are recognising the entire interest income at maturity, the full amount will be taxable in the year of receipt—which may lead to higher tax liability.

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RD vs FD vs PPF: Tax Treatment Comparison

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Common Mistakes to Avoid

1. Waiting until maturity to declare interest

Interest must be declared on an accrual basis each year. Do not wait until maturity.

2. Not checking Form 26AS

Always verify that the TDS deducted by the bank/post office is correctly reflected in Form 26AS. Mismatches can lead to notices.

3. Not submitting Form 15G/15H

If your total income is below the taxable limit, submit Form 15G/15H to avoid TDS deduction.

4. Filing the wrong ITR form

If you have RD interest, you cannot file ITR-1 if your income from other sources exceeds ₹50 lakh or if you have business income.

5. Forgetting to report accrued interest

Interest that accrues each year must be reported in that year's ITR, even if you have not received it yet.

6. Not considering the aggregate threshold

TDS applies when the aggregate interest from all deposits with the same bank/post office exceeds the threshold—not per deposit.

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Key Points to Remember

1. RD interest is fully taxable as "Income from Other Sources" at your applicable slab rate.

2. Interest is taxable on an accrual basis—you must declare it each year, not just at maturity.

3. TDS under Section 194A applies when aggregate interest from all deposits with a bank/post office exceeds ₹40,000 (₹50,000 for senior citizens) in a financial year.

4. TDS rate is 10% (20% if PAN is not provided).

5. Submit Form 15G/15H to avoid TDS if your total income is below the taxable limit.

6. At maturity, only the interest component is taxable—the principal is not.

7. If you have already declared the interest annually, do not pay tax on it again at maturity.

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Where Tax Garden Helps

Tax on recurring deposits can be confusing—especially the accrual basis of taxation and the TDS thresholds. A single mistake can lead to notices, refund delays, or loss of TDS credit.

Tax Garden's CAs help you:

• Calculate the correct accrued interest on your RDs
• File your ITR with the correct entries in Schedule OS
• Claim TDS refunds if excess TDS has been deducted
• Submit Form 15G/15H correctly to avoid TDS deduction
• Respond to any notices from the Income Tax Department

Looking for expert help with recurring deposit income tax, RD tax, TDS on recurring deposit, RD interest taxable, recurring deposit ITR filing? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.

Recurring Deposit Income Tax: Frequently Asked Questions

Is recurring deposit interest taxable in India?

Yes. RD interest is fully taxable as 'Income from Other Sources' under Section 56 of the Income Tax Act. It is taxed at your applicable income tax slab rate. Verify current rules on incometaxindia.gov.in.

When is RD interest taxable?

RD interest is taxable on an accrual basis. This means you must declare the interest that accrues in each financial year in your ITR for that year, even if you have not yet received it. Do not wait until maturity.

What is the TDS limit on recurring deposit interest?

TDS under Section 194A applies when the aggregate interest from all deposits (FDs and RDs) with a bank or post office exceeds ₹40,000 in a financial year (₹50,000 for senior citizens). Verify current thresholds on incometaxindia.gov.in.

What is the TDS rate on RD interest?

The TDS rate is 10% if PAN is provided. If PAN is not provided, TDS is deducted at 20% under Section 206AA.

How can I avoid TDS on RD interest?

If your total income is below the taxable limit, you can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) to the bank or post office to request non-deduction of TDS.

How do I report RD interest in my ITR?

RD interest must be reported in Schedule OS (Income from Other Sources) of your ITR under 'Interest from deposits' or 'Other interest income'. Enter the total interest accrued during the financial year.

Is the RD maturity amount fully taxable?

No. Only the interest component of the RD is taxable at maturity. The principal amount is not taxable. If you have already declared the interest annually, you do not need to pay tax on it again at maturity.

What is the difference between RD and FD tax treatment?

Both RD and FD interest are fully taxable at the slab rate and subject to TDS under Section 194A. However, RD interest is taxable on an accrual basis (as it accrues), while the timing can differ for FD based on the type of FD.

Is post office RD interest tax-free?

No. Post Office RD interest is fully taxable. TDS is deducted if the interest exceeds the prescribed threshold (₹40,000 for general individuals, ₹50,000 for senior citizens). Verify current rules on incometaxindia.gov.in.

What happens if I don't report RD interest in my ITR?

Failure to report RD interest can lead to income tax notices, scrutiny, penalties, and interest on unpaid tax. The Income Tax Department receives data through AIS and Form 26AS, making non-disclosure increasingly risky.

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Sources: Income Tax Act, 1961, Sections 56, 194A, 206AA; Income Tax Department e-Filing portal (incometaxindia.gov.in); Outlook Money; Bajaj Finserv; Scripbox; Moneycontrol; Mint; AU Small Finance Bank. Verify current TDS thresholds, rates, and procedures on incometaxindia.gov.in before acting, as rules may be updated periodically. This article is general information on recurring deposit income tax and not a substitute for professional advice.