The savings account and fixed deposits in our bank earn us interest income. Most of the time we remain oblivion about the interest earned on our fixed deposits, savings accounts and recurring deposits. This interest income needs to be disclosed in the income tax return too. Hence, it is important to know the taxability of these incomes
Tax on savings account interest income
A tax deduction with a maximum amount of Rs 10,000 per year is allowed under section 80TTA as interest from a savings account. For calculating the exemption limit of Rs 10,000, the interest income earned from all the savings accounts is taken into account. This interest saving is allowed for a savings account with bank, post offices and co-operative banks. The interest earned above Rs 10,000 is taxable as per the income tax slab rates. Moreover, TDS is not deducted on interest income, unlike fixed deposit and term deposits.
Tax on interest income from fixed deposits
Interest earned from fixed deposits is liable to be taxed on an accrual basis at the applicable slab rates. Interest is fully taxable at the slab rates applicable to the person. The deduction of Rs 10,000 is not applicable as it is allowed in the savings account interest. TDS is deducted from the interest credited as soon as the amount paid or credited exceeds Rs 10,000. This TDS rate is 10 per cent on residents, 20% rate in absence of PAN and 30.90 per cent to non-resident Indians.
Tax on Recurring Deposits
TDS is deducted on the recurring deposits @10% under section 194A. The interest earned on recurring deposit is not allowed as a deduction and full interest amount is taxed unlike the interest earned on savings account on which a deduction of Rs 10,000 is allowed.
Tax in interest earned on bonds
Private or public corporations issue corporate bonds. The interest is taxable on an accrual basis at slab rates. The bonds are listed and in demat format, hence no TDS is deducted from the bond.
Exemption on TDS can be claimed on submitting form 15G ( for age less than 60 years) and form 15H (for age above 60 years). In order to claim exemption from TDS, the total interest income for the year should be less than the basic exemption limit of the financial year. For the Financial year 2017-18, the amount is Rs 2,50,000.
Tax on interest earned on PPF
Interest earned on Public Provident Fund is fully exempt from tax. PPF enjoys the EEE status, which means the deposits, interest earned and withdrawal amount is taxfree. The interest earned is compounded annually and calculation is done every month.