One of the most confusing–and often ignored–aspect of filing income tax returns is the computation of interest income. Interest income has to be added in your tax return forms under the head of Income from Other Sources. This is income that is over and above your primary source of income–salary, business or profession, house property or capital gains.
When interest is earned above a certain limit, it attracts tax and has to be included in the tax-filing forms. This interest can be from your savings bank account, fixed deposits, post office schemes, recurring deposits, provident fund contributions, etc. A lot of taxpayers don’t understand how to calculate this interest income and how to report it in their tax returns. Let’s take a closer look at different interest income sources and how to include them in your income tax returns.
Savings Bank Account
The interest that you earn from the money lying in your savings bank account is subject to tax as per the tax slab applicable to you. But you can claim relief of up to Rs 10,000 under Section 80TTA. This means that if the interest earned from a savings bank account is less than Rs 10,000, then you don’t have to pay taxes on it. If the interest earned goes above Rs 10,000, then the additional amount should be added to the income from other sources head. This applies to all savings bank accounts that you hold, not just the one that is linked to your tax filing account.
Any interest that you earn in a financial year from investments in fixed deposits is added to your taxable income and taxed as per the tax slab you fall under. The interest you will earn from fixed deposits will be paid out after TDS is deducted from it. Hence, the interest income that you add to your tax forms should be after the TDS is adjusted.
National Savings Certificate
While the amount invested in an NSC earns you a tax break under Section 80C, the interest or returns earned from these NSC investments are subject to tax. There is no TDS deduction on NSC interest payouts and the entire amount is added to the investor’s taxable income as per the applicable tax slab. This interest income is also to be added to income from other sources head.
Interest income earned from recurring deposits have the same tax treatment as fixed deposits. TDS is deducted from the interest given out of a recurring deposit and is added to the taxable income. This interest income is also subject to tax as per the applicable tax slabs. A taxpayer has to deduct the TDS and add the interest income to income from other sources in the tax returns.
These are common sources of interest income that taxpayers need to compute and include in their income tax returns. Remember that the Section 80TTA deduction is available to interest income from savings bank accounts only.
This article was published in DNA on 23 July 2016.