TDS on RD interest, and how to avoid it legally

RD interest follows the same TDS rule as fixed deposits — a bank withholds 10% once a single financial year’s interest from it crosses ₹50,000 (₹1,00,000 for senior citizens). But an RD’s balance doesn’t start at its full size the way an FD’s does; it builds up one instalment at a time, and that changes when the threshold actually gets crossed.

Why the threshold can bite partway through, not from year one

A fixed deposit’s interest is roughly the same every year, since the full principal is sitting there earning interest from day one. An RD is different: only a handful of instalments have been deposited by the end of year one, so that year’s interest is small — and it grows every year after, as more instalments pile up and the whole balance keeps compounding. That means the same RD can go several TDS-free years and then start crossing the threshold later in its own tenure.

The threshold is still checked fresh every financial year, exactly as it is for an FD — the only thing that’s different here is that an RD’s own growing balance can make the answer change partway through the same deposit, rather than staying the same (either always over, or always under) for its whole life.

Form 15G and 15H: stopping the deduction before it happens

Form 15G (for depositors under 60) and Form 15H (for senior citizens) are self-declarations submitted to the bank stating that the depositor’s total income for the year won’t actually be taxable — once accepted, the bank stops withholding TDS on that account entirely, for as long as it stays valid. Since an RD can go from TDS-free to TDS-liable partway through its own tenure, as shown above, it’s worth checking each year rather than assuming a form filed once at account-opening still applies once the balance has grown — most banks require it to be submitted fresh every financial year. The mechanics here are identical to fixed deposits, covered in more depth in TDS on FD interest, and how to avoid it legally, including Form 15H’s more lenient nil-tax-liability condition for senior citizens.

If TDS was already deducted, it’s not the final word

TDS is a provisional withholding against an estimated liability, not the final tax computation. If a depositor’s real total income for the year turns out to be below the taxable threshold, or their actual marginal rate is lower than 10%, the excess withheld isn’t lost. It can be claimed back by filing an income tax return and setting the TDS already deducted against the actual tax computed, with any excess refunded. This works whether or not Form 15G/15H was filed in time.