A Recurring Deposit is a deposit scheme, much like a fixed deposit, where an investor chooses the amount to invest and the term of investment. However, unlike an FD, the mode of investment is not a lump sum amount but regular monthly savings. Thus, the scheme works like an SIP in fixed deposits. Only banks and post offices offer RD schemes. The investor receives a fixed interest for the term, and on maturity, the principal along with interest is paid. Generally, the term of this scheme varies from 6 months to 10 years. While most banks accept a minimum deposit of Rs 100, one can start the investment in an RD scheme even with Rs 10 through the post office. Some banks even impose a maximum limit on the amount of investment one can make.
Who can Invest?
All resident Indians and HUF are allowed to open an RD scheme with any of the banks or post office. Even NRIs can open an RD scheme through their NRE account but only at the banks and not the post office.
Taxability
Like a fixed deposit, the interest in a Recurring Deposit scheme is taxable. However, there is a difference between the taxability of these two instruments. In an RD investment, there is no TDS deducted by the bank/post office, and there is neither any exemption available. Thus, the liability of paying tax on this scheme is entirely on the investors. Although the interest is received on maturity, the tax is payable every year as it gets accrued. If the investment is in a minor's name, then the interest income is clubbed with the parent with higher income. Due to the taxability of this interest amount, the net return from the scheme varies for individuals in different tax slabs.
Who benefits?
The scheme is much in demand during the last 1-2 years due to higher interest rates. Even in the existing scenario, the interest rate offered by most banks for a 5-10 year deposit is roughly 8-9%. This is still attractive to lower-income individuals and senior citizens considering the interest remains fixed for the term. However, for a higher tax slab, the debt mutual funds offer higher tax efficiency, and so this may not be a viable option. Thus, an RD scheme is an ideal choice for small investors whose interest income will not fall within those taxable limits.
From India, Ahmadabad
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34Who can Invest?
All resident Indians and HUF are allowed to open an RD scheme with any of the banks or post office. Even NRIs can open an RD scheme through their NRE account but only at the banks and not the post office.
Taxability
Like a fixed deposit, the interest in a Recurring Deposit scheme is taxable. However, there is a difference between the taxability of these two instruments. In an RD investment, there is no TDS deducted by the bank/post office, and there is neither any exemption available. Thus, the liability of paying tax on this scheme is entirely on the investors. Although the interest is received on maturity, the tax is payable every year as it gets accrued. If the investment is in a minor's name, then the interest income is clubbed with the parent with higher income. Due to the taxability of this interest amount, the net return from the scheme varies for individuals in different tax slabs.
Who benefits?
The scheme is much in demand during the last 1-2 years due to higher interest rates. Even in the existing scenario, the interest rate offered by most banks for a 5-10 year deposit is roughly 8-9%. This is still attractive to lower-income individuals and senior citizens considering the interest remains fixed for the term. However, for a higher tax slab, the debt mutual funds offer higher tax efficiency, and so this may not be a viable option. Thus, an RD scheme is an ideal choice for small investors whose interest income will not fall within those taxable limits.
From India, Ahmadabad
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RD gives you discipline and regular savings with a specific time period. You may want a car in three years - open an RD and work towards saving max money possible. However, Honorable Jaitley has brought in TDS for F/Y 2015-16. Amendments made to Section 194A will mean that interest income above Rs 10,000 for an RD will attract TDS. If your risk appetite is higher, go in for SIP of a five-star rated Large Cap fund.
From India, Pune
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From India, Pune
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