Question 1

How is RD interest calculated in India?

Accepted Answer

RD (Recurring Deposit) interest is calculated using quarterly compounding guidelines set by RBI. The maturity formula is: M = P × [ (1 + i)^n - 1 ] / [ 1 - (1 + i)^(-1/3) ] where P is monthly deposit, i is r/400 (quarterly rate), and n is number of quarters.

Question 2

What is the compounding frequency for recurring deposits?

Accepted Answer

In India, bank Recurring Deposits compound interest on a quarterly basis, similar to Fixed Deposits, even though the contributions are made monthly.

Question 3

Is RD interest taxable?

Accepted Answer

Yes, RD interest is fully taxable under 'Income from Other Sources' at your normal income tax slab rate. TDS is applicable at 10% if the interest exceeds ₹40,000 (₹50,000 for senior citizens).

Question 4

Can I withdraw my RD before maturity?

Accepted Answer

Yes, premature closure of RD is allowed, but banks usually levy a penalty of 1% on the applicable interest rate for the period the deposit remained with the bank.

Question 5

What is the minimum tenure for a Recurring Deposit?

Accepted Answer

The minimum tenure for a bank RD is 6 months, and the maximum tenure is typically 10 years (120 months) in India.

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