Income Tax on Recurring Deposit Interest: Know the Implications
September 16, 2026
Did you know that, from April 1, 2026, the Income Tax Act, 2025 replaces the Income Tax Act, 1961? The interest earned on Recurring Deposits (RDs) remains taxable under the Income Tax Act, 2025. As a mandate, you must include the interest earned on your RD during a tax year in your total income under “Income from Other Sources”.
Under the 1961 Act, Section 56 covered income from other sources. Under the 2025 Act, Section 92 covers income from other sources.
In this blog, we have explained the tax on RD interest. This might help you understand how much returns you would actually get once your Recurring Deposit matures.
How Much Tax is Applied on RD Interest?
Your Recurring Deposit returns, as in the interest income, is fully taxable. The interest earned is added to your total income and taxed as per your tax slab. So, if you fall under the 30% tax bracket, your tax outgo could be on the higher side. That said, the tax implications depend on how much you have earned on your RD investment.
Are There any Tax Exemptions on RD Interest?
Unlike Savings Accounts, where you can enjoy tax-free interest up to ₹10,000 under Section 80TTA (for regular depositors, for senior citizens, it's ₹50,000 under Section 80TTB), your RD returns is considered under ‘income from other sources’ and is fully taxable. That said, you still might get some relief with TDS (Tax Deducted at Source) if you meet certain terms and conditions.
TDS on RD Interest Explained
As per the prevailing income tax laws, if your RD interest income exceeds ₹50,000 in a financial year, a 10% TDS would be levied by the bank. This TDS is applicable if you provide a PAN card.
If PAN card is not provided, 20% TDS would be levied by the bank. For senior citizens, the RD TDS rule remains the same, however the threshold for interest income in a financial year is extended to ₹1 lakh.
Do I have to Pay Income Tax on the Recurring Deposit Principal Amount?
The RD principal amount is not taxed. The interest income is added to your gross income and taxed as per the income tax slab you fall into.
Is Tax on RD Applicable if my Income is Lower than the Minimum Tax Slab?
If your total income is below the taxable limit, you can submit Form 121 to the bank to request non-deduction of TDS on eligible interest income. From April 1, 2026, the unified Form 121 replaces Forms 15G and 15H. Form 121 applies to both senior citizens and non-senior citizens.
My TDS Has Been Deducted, But I Fall Below the Minimum Tax Slab
If your bank has deducted TDS even though you fall below the taxable limit, you can claim a refund while filing your Income Tax Return. From April 1, 2026, Form 131 replaces Form 16A as the TDS certificate for non-salary income, including interest income. You can use the TDS reflected in the certificate to claim the applicable refund while filing your return.
Strategies to Minimise Tax Liability on RDs
Follow the below strategies to legally minimise your tax outgo:
Splitting Recurring Deposits
One way to reduce the tax impact of your RD interest is by splitting your RDs among family members. If each family member has an RD with interest below ₹10,000, they won't face TDS. This strategy helps you stay under the TDS threshold, lowering your overall tax liability.
Investing in Tax-Saving Instruments
Another effective approach is to invest in tax-saving instruments alongside your RDs. For example, investing in 5-year Tax-Saver Fixed Deposits or Home Loans can help you save on your tax obligations.
Combining these strategies allows you to manage your tax liabilities better and maximise your savings growth.
FD vs RD
Your choice between an RD and an FD affects both returns and how tax is deducted. The table below can help you compare fixed and recurring deposits before opening one.
Feature | Fixed Deposit (FD) | Recurring Deposit (RD) |
| Investment pattern | You invest a lump sum amount at once. | You deposit a fixed amount regularly, usually every month. |
| Interest calculation | Interest is calculated on the deposit amount for the chosen tenure. | Interest is calculated on each installment based on the period it remains with the bank. |
| Interest/Returns | The entire deposit earns interest from the start, which can result in higher returns on a lump-sum investment. | Each instalment earns interest from the date it is deposited, helping you build returns gradually. |
| Compounding | Compounding can result in higher earnings, as interest is earned on the lump-sum amount invested. | The compounding effect can be comparatively lower in the initial years, as the deposit is built through smaller instalments. |
| Tax on interest | Taxable. Under ‘Income from Other Sources’. | Taxable. Under ‘Income from Other Sources’. |
| TDS | Since the entire deposit is invested at once, the interest earned may be higher, so the applicable TDS threshold may be reached sooner. | Since the deposit is built through smaller instalments, the interest earned may be lower initially, so TDS may not apply in the initial years. |
| Suitability | Suitable if you can invest a lump sum and still have sufficient cash flow for your other needs. | Suitable if you prefer to keep your monthly cash flow available while saving through regular installments. |
Note: TDS applicability depends on the amount invested and is not universal. If the amount invested is higher, TDS may apply if the applicable threshold is crossed.
RD and FD interest are both taxable, so comparing post-tax returns helps you choose. Estimate FD returns for the same amount and tenure to compare.
How Are NRI Deposits Taxed?
Tax treatment differs for non-residents, whose NRO interest is taxed at source. NRIs can review NRI deposit accounts and their tax rules.
What Is a Lower TDS Certificate?
If the tax applicable to your interest income is lower than the TDS that would otherwise be deducted, you can apply for a lower or nil TDS certificate. From April 1, 2026, Form 128 replaces Form 13 for applying for a lower or nil TDS certificate under the Income-tax Act, 2025.
The certificate authorises the payer to deduct TDS at the lower rate or nil rate specified in the certificate. Form 128 can be filed by both resident and non-resident taxpayers for eligible income, including interest.
What Is the Difference Between a Lower TDS Certificate and Form 15G/15H?
Form 15G/15H were self-declarations submitted to the bank to request no TDS when the applicable conditions were met. From April 1, 2026, Form 121 replaces Forms 15G and 15H.
A lower TDS certificate is issued by the Assessing Officer when your estimated tax liability justifies lower or nil TDS. From April 1, 2026, Form 128 replaces Form 13 for applying for this certificate.
Final Thoughts
Understanding recurring deposits tax implications is crucial for managing your investments wisely. We covered how RD interest is taxed, including TDS rules and how it affects your returns. You learned that taxes can impact your returns, but strategies like splitting RDs and investing in tax-saving instruments can help minimise your tax liability.
Start small, dream big! Invest in Ujjivan Small Finance Bank’s Recurring Deposit and enjoy higher interest rates! Save for your long- and short-term goals with our RD and live a stress-free financial life. Start investing with just ₹100!
Disclaimer:
The contents herein are only for informational purposes and generic in nature. The content does not amount to an offer, invitation or solicitation of any kind to buy or sell, and are not intended to create any legal rights or obligations. This information is subject to updation, completion, amendment and verification without notice. The contents herein are also subject to other product-specific terms and conditions, as well as any applicable third-party terms and conditions, for which Ujjivan Small Finance Bank assumes no responsibility or liability.
Nothing contained herein is intended to constitute financial, investment, legal, tax, or any other professional advice or opinion. Please obtain professional advice before making investment or any other decisions. Any investment decisions that may be made by the you shall be at your own sole discretion, independent analysis and evaluation of the risks involved. The use of any information set out in this document is entirely at the user’s own risk. Ujjivan Small Finance Bank Limited makes no representation or warranty, express or implied, as to the accuracy and completeness for any information herein. The Bank disclaims any and all liability for any loss or damage (direct, indirect, consequential, or otherwise) incurred by you due to use of or due to investment, product application decisions made by you on the basis of the contents herein. While the information is prepared in good faith from sources deemed reliable (including public sources), the Bank disclaims any liability with respect to accuracy of information or any error or omission or any loss or damage incurred by anyone in reliance on the contents herein, in any manner whatsoever.
To know more about Ujjivan Small Finance Bank Products Visit:"https://www.ujjivansfb.bank.in"
All intellectual property rights, including copyrights, trademarks, and other proprietary rights, pertaining to the content and materials displayed herein, belong
to Ujjivan Small Finance Bank Limited or its licensors. Unauthorised use or misuse of any intellectual property, or other content displayed herein is strictly prohibited and the same is not intended for distribution to, or use by, any person in any jurisdiction where such distribution or use would (by reason of that person’s nationality, residence or otherwise) be contrary to law or registration or would subject Ujjivan Small Finance Bank Limited or its affiliates to any licensing or registration requirements.
