Have Interest Income? See How Much Is Taxable?

The savings from our regular income are invested by us in financial instruments for earning interest income. The most popular of such instruments are Fixed Deposits (FDs) in banks and Post Office, Recurring Deposits (RDs), Public Provident Fund (PPF), Corporate and Government Bonds. Besides these many people keep money in savings accounts in banks and post offices. All of these investments earn interest income on the amount of investments at an applicable rate of interest. Besides the interest income, it also gives us capital gains income on instruments like bonds. The interest income on such investments is categorized as ‘Income from Other Sources (IfOS). The interest income, if taxable suffers TDS at the applicable rates.

Different incomes are summarised here:

Sr. No.	Source	Exempt Portion u/s10 (Max. Limit ₹)	Deduction available u/s 80TTA/TTB (₹)	To whom	Conditions	TDS Applicable?
01	Savings Bank	0	10000/- and 50,000/- in case of senior citizens	Individual and HUF	The income which is claimed as exempt u/s 10 is not again claimed for deduction u/s 80TTA/TTB	Yes
02	Savings Post Account	3500 in case of individual and 7000 in case of the joint account	10000/- and 50,000/- in case of senior citizens	Individual and HUF	The income which is claimed as exempt u/s 10 is not again claimed for deduction u/s 80TTA/TTB	Yes
03	Interest on Fixed Deposits	0	50,000/- in case of senior citizens	Individual and HUF	The income which is claimed as deductible u/s 80TTA is not to be again claimed as deductible u/s 80TTB	Yes
04	Public Provident Fund (PPF)	Entire income	NA	Individual and HUF	–	No
05	Corporate or Government bonds	Fully-taxable. Except for amount as specified in case of Tax-Free Government Bonds.	NO	NA	–	Yes

01. Savings Bank Account Interest You may be keeping a savings bank account in a bank, a co-operative bank, or a post office. The amounts accumulated in such savings bank account yield interest income at the prevalent rates of such a bank or the case may be. This interest income is taxable as income from other sources. You should check your bank statement to find out the credits of such interest in the savings bank account. The aggregate amount of such credits forms the total interest income from savings account which has to be declared as income from other sources.

Once you aggregate the amounts from different savings accounts, segregate the amounts in post office savings accounts. The interest income in post office savings accounts is tax-free to the extent of ₹3,500/- in case of the individual account and ₹7,000/- in case of the joint account. Thus, this amount need not be part of the gross total income. The income from other sources shall be reduced by this amount to determine net income from other sources. The tax-free portion needs to be reported as exempt income in the Income-tax return.

Further, in the case of individuals (less than 60 years of age) and HUF, the deduction up to ₹10,000/- can be claimed. Thus, for an individual (less than 60 years of age) who earns interest income of ₹30,000/- out of which ₹10,000/- is from post office joint savings account, the tax-free income is ₹17,000/- and taxable income is ₹13,000/-.

In the case of senior citizens (more than 60 years of age), this deduction is up to the amount of ₹50,000/- instead of ₹10,000/-. Thus, the senior citizen can claim a tax-free income of up to ₹57,000/- instead of ₹17,000/- in the case of non-senior citizens.

02. Interest from Fixed Deposits or Recurring Deposits The fixed deposits or recurring deposits are time deposits with pre-decided tenure of maturity. The interest in them accrues in a certain periodical manner. This interest income is categorized as income from other sources. This interest income is fully taxable and no part of it is exempt from tax like the interest on post office savings account. However, senior citizens can claim the deduction from such income and such deduction can be claimed up to ₹50,000/- in the hands of senior citizens.

03. Interest Income on Corporate/Government bonds The corporate bonds are issued by public and private companies to raise funds and the coupon rate (interest rate) is already decided. The interest yielded by these bonds is entirely taxable as income from other sources. However, the interest income from tax-free bonds issued by government or public sector companies like REC or NHAI or NHB are tax-free and are so published in the Government notification.

04. Interest on Public Provident Fund (PPF) This is a well-known investment product subscribed by many people in India. The interest earned on PPF is shown in the PPF account. This interest is completely tax-free and need not be included in the income from other sources. However, this needs to be reported as exempt income in the Income-tax return.

How is TDS done on interest income? The payer of interest who may be a bank or post office or a person has to pay to deduct income tax on the interest income whenever he debits the said interest in his books of account as expenses. It does not matter whether he pays interest to the recipient or not but once he claims as interest in his accounts, that means he has to deduct tax and deposit to the Government account. This is TDS on interest income and is done as per section 194A of the Income-tax Act. The rates of TDS are as below:

Sr. No.	Source	The income limit for TDS (₹)	Rate of TDS *
01	Savings Bank	40,000/- (50,000/- for senior citizens)	7.5%
02	Savings Post Account	40,000/- (50,000/- for senior citizens)	7.5%
03	Interest on Fixed Deposits	40,000/- (50,000/- for senior citizens)	7.5%
04	Public Provident Fund (PPF)	NIL/No TDS	NA
05	Corporate or Government bonds	5,000/-	7.5%

(*) This rate is as per the Press Release of Ministry of Finance dated 13/05/2020 and is applicable from 14/05/2020 to 31/03/2021. This rate is only in respect of individuals and HUFs.

In case your total income from all sources is not taxable and there is no need to do TDS on interest income then you have to submit Form 15G or Form 15H to the payer bank or post office as the case may be.

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