# Recurring Deposit Calculator

A recurring deposit (RD) is a terrific instrument for meeting important short-term goals. If I can claim to have some financial discipline it is because I observed my parents open RDs for meeting their short term goals ranging from paying insurance premium to my school fee. For the new generation of investors I guess the RD could be introduced  as a SIP in a debt fund with a predetermined rate of return!

For important short-term goals (say, 3 years or less) a RD is a guaranteed way of saving, irrespective of ones tax bracket. It is surprising to see many ‘experts’ talk only about debt funds and ignore RDs. If I wanted to save for my sons school-joining fee I will trust only a RD. If I wanted an SLR camera, and can wait a year or more, I will probably invest in a liquid debt fund or an ‘arbitrage’ mutual fund.

The only issue with RDs is tax computation. Although banks do not deduct tax on RD interest it is entirely taxable and should be paid on an accrual basis,. That is the interest earned in each financial year should be declared for tax computation. Taxation is as per income slab. Trouble is RDs are typically compounded quarterly and the interest earned each FY is not obvious at all.

Here is a RD calculator which give you the tax liability each FY for different types of compounding (annual, half-yearly, quarterly and monthly). This allows the user to change the monthly deposit until the post-tax corpus matches with the target.

If you want to know more about annualised yield associated with a recurring deposit, check out this version:

This first appeared as a guest post in OneMint.

Here is a collection of good RD resources

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## 10 thoughts on “Recurring Deposit Calculator”

1. Very helpful. But a doubt I can choose to pay tax on maturity only ? Why should I go for accrual basis

1. Thanks. The choice does not exist! Like FDs, tax on RDs (NSCs) have to be paid on accrual basis. If paid on maturity it has to be paid with interest(due to delay!)

2. Ravi says:

Thanks Pattu. This is excellent work ! Very helpful.

3. I had covered this is my blog post at Overview of Recurring Deposits where I had given references to few links on net regarding tax on interest on RD Quoting from it :
Interest on recurring deposits with banks will be charged to tax under the head â€˜income from other sourcesâ€™. Income under this head is to be computed based on the method of accounting regularly employed by the assessee being the cash or mercantile system of accounting. You have an option of choosing your method of accounting in respect of such interest income which is chargeable under the head â€˜other sourcesâ€™. The income will thus be taxed on the basis of such method which is chosen by you and is consistently followed.

1. Yes I am aware of what you wrote. However I don’t see an official source. Hindu Business line can be notoriously wrong.

I will interpret this as “no distinction bet, a RD and FD in terms of taxation”.

If you can point me to an official link which suggests that there is a choice specifically for RDs I will be happy to stand corrected.

4. sunil says:

Dear Pattu,
Even for an FD done say for 3 years, should i pay interest on Accrual Basis or at the end when i get money in my hand???