Fixed deposits, savings account, post office schemes earn interest which if above a certain limit should be reported in income tax return.
Interest earned above a certain limit attracts tax deduction on interest income, but many individuals are not sure how tax is treated or how their interest income is getting charged under tax. Fixed deposits, savings account, post office schemes, recurring deposits earn income interest, which should be reported in one's income tax return. Tax can be very hard to deal with but it is also unavoidable.
TAX ON INTEREST INCOME
SAVINGS ACCOUNT: Interest on savings account is taxable as per Income tax slab rates applicable to the investor. However, deduction under section 80TTA is allowed on interest from savings account with a maximum of Rs.10,000/- per year. This deduction is available only to individual and HUF. In 80TTA of the Income tax act, interest upto `10000 earned from all savings bank account is exempt from tax. This is applicable for savings bank account, post office or co-operative banks. If the interest earned from these sources exceeds Rs.10000, the extra amount will be taxable. For example: Raahul earns Rs.8000 from his saving accounts, so he does not have to pay any tax for it. But Gaurav earns Rs.15000 from his savings accounts, so he needs to pay income tax on Rs.5000 according to his tax slab. "TDS on saving interest is not deducted like fixed deposit and term deposit. But the account holder should calculate and declare the interest from all saving bank accounts during the financial year under the head 'Income from other sources' claim deduction u/s 80TTA and pay the tax accordingly", says, Sudhir Kaushik, Co-Founder & CFO, TaxSpanner.com. Keeping minimum balance in savings accounts is suggested because the rate of interest is very low and it is also reduced by income tax payable: 2.8% per annum for person in 30% tax slab with 4% interest on saving account.
FIXED DEPOSIT: Interest earned from fixed deposits is liable to be taxed on accrual basis at the slab rate applicable. Interest on Fixed is fully taxable at Income tax slab rates applicable to the person. There is no separate deduction of Rs. 10,000/- as available in the Savings account interest. "As per Income Tax Act, 1961 u/s 194A (1) (3) (i) where the amount or aggregate of the amounts of interest credited or likely to be credited or paid during the financial year exceeds Rs.10,000/-, TDS is applicable from the first interest flow" adds Kaushik. Minors who hold deposits are also subject to TDS; the person in whose hands the minor's income is included can claim the credit for the TDS.
TDS RATES ON FIXED DEPOSITS:
@ 10% on interest to residents,
@ 20% is applicable in absence of PAN / valid PAN.
@ 30.90% to non resident Indians
RECURRING DEPOSITS: Recurring Deposits attract tax deduction @10% of the Interest earned. Earlier, TDS was not charged on Recurring Deposits but from 1st June 2015 - TDS on Recurring Deposits @ 10% U/S 194A was added. pls click to cont..
TAX ON INTEREST INCOME
SAVINGS ACCOUNT: Interest on savings account is taxable as per Income tax slab rates applicable to the investor. However, deduction under section 80TTA is allowed on interest from savings account with a maximum of Rs.10,000/- per year. This deduction is available only to individual and HUF. In 80TTA of the Income tax act, interest upto `10000 earned from all savings bank account is exempt from tax. This is applicable for savings bank account, post office or co-operative banks. If the interest earned from these sources exceeds Rs.10000, the extra amount will be taxable. For example: Raahul earns Rs.8000 from his saving accounts, so he does not have to pay any tax for it. But Gaurav earns Rs.15000 from his savings accounts, so he needs to pay income tax on Rs.5000 according to his tax slab. "TDS on saving interest is not deducted like fixed deposit and term deposit. But the account holder should calculate and declare the interest from all saving bank accounts during the financial year under the head 'Income from other sources' claim deduction u/s 80TTA and pay the tax accordingly", says, Sudhir Kaushik, Co-Founder & CFO, TaxSpanner.com. Keeping minimum balance in savings accounts is suggested because the rate of interest is very low and it is also reduced by income tax payable: 2.8% per annum for person in 30% tax slab with 4% interest on saving account.
FIXED DEPOSIT: Interest earned from fixed deposits is liable to be taxed on accrual basis at the slab rate applicable. Interest on Fixed is fully taxable at Income tax slab rates applicable to the person. There is no separate deduction of Rs. 10,000/- as available in the Savings account interest. "As per Income Tax Act, 1961 u/s 194A (1) (3) (i) where the amount or aggregate of the amounts of interest credited or likely to be credited or paid during the financial year exceeds Rs.10,000/-, TDS is applicable from the first interest flow" adds Kaushik. Minors who hold deposits are also subject to TDS; the person in whose hands the minor's income is included can claim the credit for the TDS.
TDS RATES ON FIXED DEPOSITS:
@ 10% on interest to residents,
@ 20% is applicable in absence of PAN / valid PAN.
@ 30.90% to non resident Indians
RECURRING DEPOSITS: Recurring Deposits attract tax deduction @10% of the Interest earned. Earlier, TDS was not charged on Recurring Deposits but from 1st June 2015 - TDS on Recurring Deposits @ 10% U/S 194A was added. pls click to cont..
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