Putting TDS provisions for recurring deposits to work

TDS on recurring deposits makes investors either submit the exemption forms if there is no taxable income. In case of TDS on RD, they may have to revisit their tax calculations and accordingly pay tax

The provisions for the applicability of the tax deduction at source (TDS) for recurring deposits are now into the implementation phase. This means that there is one additional area where the tax payer has to focus their attention. Since there was no tax deduction at source earlier there was no tax implication for any investment made into this area at this initial stage but this will now change. There are several steps that need to be taken so that the individual is in tune with the changed circumstances. Here is a closer look at what needs to be done and the manner in which this can be accomplished.

Change

The change that the union budget 2015 has brought about is that there would be the coverage of recurring deposits in the list of instruments that would be subject to the tax deduction at source. This would mean that if an investor has an income in excess of Rs 10,000 from recurring deposits then this would suffer the same kind of TDS that they would experience when they have fixed deposits. This would mean that at the time of redemption of the investment there would be a lower amount that would come to the investor because the TDS would reduce the amount as compared to earlier when the entire figure would be received by the investor. The main point to remember here is to give the PAN to the bank otherwise the rate of the deduction will be higher.

This does not change the overall nature of taxation for the interest on fixed deposit as these remain taxable which was also the case earlier. So for investors this move will actually ensure that a part of their payment is actually made through the TDS route and hence they would have a reduced liability in terms of payment of advance or self assessment tax. 

Form 15G/15H

Investors who do not have any taxable income and hence would not want any tax to be deducted from the amount that they earn on the recurring deposits would have to ensure that they submit the required forms to the bank. This would have to be done immediately otherwise the deduction would start as the income is earned. This is significant as there is a time element for the submission of the forms and the investor should focus attention to this area if they need to ensure that there is no deduction that they actually face. Senior citizens would need to be especially alert because they are most likely to be covered under these kind of conditions.

Annual update

For a long period of time many investors actually did not pay much attention to the recurring deposit investments that they actually made. This was because they thought that there is not much to do in terms of the tax impact. This often led to a situation wherein the income that was earned from the recurring deposits never made it to the income tax returns at the end of the financial year. This is something that needs to be avoided as it shows that some of the income that is actually taxable is not being shown properly. 

Now this would need special attention as there is likely to be both income as well as tax deduction that would present. Not claiming the tax deduction would lead to a loss of benefit while the non inclusion of the income would mean that the right picture is not being shows in the tax returns. Interest on recurring deposits is taxable and hence has to be included in the calculations as such. Both these aspects would need the attention of the investors and hence this would have to be the focus area and it would need work at the end of every financial year which in a way is a good thing as it ensures that nothing is missed out.