In today’s time, every person walks with his future in mind. Savings are necessary to ensure that money is available to meet future needs. Most people consider savings in savings account, fixed deposits, keeping deposits in India, easy, simple and safe for savings. But it is important to note that the interest earned on the money deposited in these investment options comes under the income tax i.e. income tax because the interest from these savings schemes is considered ‘income from other sources’. Let us know how tax is calculated on the interest income under these three investment options…
Savings Account and FD
Under Section 80TTA of Income Tax Act, interest income up to Rs. 10,000 per annum is tax free in case of savings account of bank / co-operative society / post office. Its benefit is given to a person below 60 years of age or HUF (Hindu Undivided Family).
Talking about FD, the bank deducts TDS on the interest received from FD, which the banks deduct. But if the annual interest income from the bank FD is within the limit of Rs 40,000, then there is a provision for exemption from TDS. This limit is for people under 60 years. It is worth noting here that TDS is not deducted on interest income from FD of post office.
Now let’s talk about the senior citizens who are above 60 years of age. In case of Senior Citizens, interest up to Rs 50000 in a financial year is free from any deposits made in savings account, FD / TD, post office schemes, co-operative banks. This is under Section 80TTB of the Income Tax Act.
Post office savings account slightly more
According to tax expert Sunil Garg, people holding post office savings account can get a little more tax benefit. Very few people are aware that under Section 10 (15) of the Income Tax Act, single account holders can claim an additional deduction of up to Rs 3500 on the annual interest income arising from the Post Office Savings Account. On the other hand, if the account is in the joint then additional deduction up to Rs 7000 can be claimed. This additional deduction is beyond the limit of 10000/50000 rupees.
It can also be understood that if the bank has a savings account, then only the interest income of Rs 10000 (Rs 50000 for senior citizen) is exempt from tax, whereas if the post office has a savings account then Rs 13500 on single account (Rs. 53500 for Senior Citizen) and annual interest income up to Rs. 17000 (Rs. 57000 for Senior Citizen) on the joint account will be tax free.
How is the discount limit decided
In the case of savings account, the interest income limit of Rs 10000 is by adding the interest income of the person to each savings account annually. That is, if the person has more than one savings account and those banks, post offices, co-operative banks are present in various financial institutions, then the limit of Rs 10000 will be counted by adding the total interest from all those accounts. The interest income amount in excess of this limit will be added to the taxable income of the person and then tax will be levied according to the tax slab the taxpayer falls under.
The rule is slightly different in the case of FD. In case of TDS on FD, the limit of up to Rs 40000 per annum is added by adding the total interest income from all FDs of a person present in all branches of a bank.
Tax on interest from RD
CA Yogesh Aggarwal says, TDS is also deducted on interest income from Recurring Deposit (RD). TDS is also not applicable on interest income up to Rs. 40000 (Rs. 50000 in case of senior citizen) from RD. This rule came into effect from April 2019. But TDS will be deducted if interest income exceeds this limit.
FD: Banks deduct 10% TDS
The rate of TDS to be deducted by the bank is 10% if the interest income exceeds the exemption limit fixed by FD / RD. But if PAN is not given, then the rate of TDS becomes 20 percent. One more thing to note is that according to HDFC Bank, from 14 May 2020 to 31 March 2021, the rate of TDS on interest income of more than Rs 40000 per annum (Rs 50,000 in case of senior citizen) from FD is reduced to 7.5 per cent. has given. However, if PAN details are not given, the rate will be 20 percent.
When the total income does not come under the tax net
If your annual interest income from FD / RD is more than Rs 40000/50000 but the total annual income (including interest income) is not to the extent where it is taxed then banks cannot deduct TDS. For not cutting the bank TDS, senior citizens have to submit form 15H to the bank. Those who are not senior citizens, have to submit Form 15G. These forms are for the declaration that the annual income of a person is not more than the minimum exemption income fixed in a financial year. These forms have to be submitted every year at the beginning of the financial year so that tax is not deducted.