New Delhi. Keeping money in Savings Account (Saving A/C), Fixed Deposit (FD), Recurring Deposit (RD) for savings in India is considered easy, simple and safe. It is important to note here that the interest earned on the money deposited in all these investment options comes under the purview of Income Tax. The interest received from these Savings Schemes is considered as Income from other Sources. Explain that for the financial year 2020-21, Income Tax Return (ITR Filing) has to be filed by 30 September. In such a situation, it is very important to know how tax is calculated on interest income and what is the exemption limit.
Tax on interest earned on deposits in savings account
Under Section-80TTA of the Income Tax Act, interest income up to Rs 10,000 per annum is not chargeable to tax in case of savings account of a bank, co-operative society or post office. This benefit is available to the person below 60 years of age or Hindu Undivided Families (HUF). For senior citizens, the exemption limit is up to Rs 50,000. If their interest is more than this, then TDS is deducted. Additional deduction of up to Rs 3500 can be claimed under section 10(15) on annual interest income from Post Office Savings Account. This additional exemption is over and above the prescribed limit.
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Tax on interest earned from fixed deposits
Banks deduct TDS on interest earned from bank fixed deposits. However, for individuals below 60 years of age, no TDS is deducted on interest income on FDs up to Rs 40,000 per annum. No TDS is deducted on interest income from post office fixed deposits. For senior citizens, interest up to Rs 50,000 in a financial year is not taxable. At the same time, 10 percent TDS is deducted if the income is more than this.
Tax on interest earned from recurring deposits
TDS is also deducted on interest income from recurring deposits. Interest income up to Rs 40,000 in a year from RD and up to Rs 50,000 in case of senior citizens is also not taxable. However, TDS is deducted if the interest income exceeds this limit.
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TDS will be deducted more in case of non-availability of PAN card
Banks deduct TDS at the rate of 10 per cent if interest income from FD or RD exceeds the specified exemption limit. Now if you do not have a Permanent Account Number (PAN), then banks will deduct TDS at the rate of 20 percent.
When will interest income not be taxed
Banks cannot deduct TDS if your annual interest income from FD or RD is more than the prescribed limit, but the total annual income together does not come under the tax net. In such a situation, senior citizens have to submit Form-15H to the bank and Form-15G to ordinary taxpayers. Through this form, it is declared that your total annual income is outside the purview of tax. This form has to be submitted every year at the beginning of the financial year so that the tax is not deducted.
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Orignally published at Tailored Stash
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