A lot of people are not clear about how the tax they pay is treated. Basically, how the income they are earning from the interest is getting charged. It is essential in today’s time to have a fair knowledge about the same. The rate of interest earned above a certain limit leads to a tax deduction on the interest income. Various forms of investment such as investment in fixed deposit, post office schemes, recurring deposits, savings account all are to be reported in one’s IT return.
Savings account: As per the Income Tax (IT) slab rates, interest on a savings account is taxable. An interest which exceeds INR 10,000 annually is allowed to be taxed as per Section 80TTA. However, if the savings from the interest is under INR 10,000 then a person is exempted from tax payment on the interest rate. It is applicable on savings accounts of banks along with post office. If an amount exceeds INR 10,000 then the surplus amount will be taxable.
Fixed Deposit: A Fixed Deposit interest is liable to be taxed on an accrual basis. It is taxed at the slab rate which is applicable. The rate of interest earned on fixed deposits is fully taxable. No separate deduction is there in the fixed deposit as there is in the case of savings account. Thus, as per IT Act, 1961 u/s 194A (1) (3) (i), if the interest income during a financial year is more than INR 10000, then the interest will be taxed. The interest rates charged on fixed deposits varies:
- @10% interest is charged to the residents
- @20% rate of interest is applicable if PAN card is not there.
- @30.90% rate of interest charged to NRIs.
Recurring Deposits: A tax deduction of 10% is attracted under recurring deposits. A few years ago, in the case of recurring deposits, tax deductible at source (TDS) was not charged. However, since January 2015, tax deductible at source (TDS) on recurring deposits @10% under section 194A was levied. An investor can choose any of the two options – either invest the interest earned once again or to take out the interest that has been earned.
Bonds: Private and public corporations issue debt securities and corporate bonds. The rate of interest on bonds offered by the corporates based on an accrual basis is taxable at slab rates. In the case of bonds, no TDS deduction is involved as they are in the demand form and are listed. Thus, the tedious process of filling the 15G/H form is not needed. As the investment involves government securities, even tax-free bonds are deliberated as risk-free.
The exemption can be asked for against taxation upon the filing for 15G if you are below 60 years and 15H if above 60 years. If your annual interest does not surpass the maximum amount, then your total taxable income can be claimed.
PPF/EPF: As confirmed by the budget of 2016, the interest rate which is earned with the help of Public Provident Fund (PPF) is fully exempted from tax payments. Not just the interest earned but even withdrawals from PPF are tax-free. The interest in PPF has compounded annually and the calculation is done on a monthly basis.
These are several ways through which you can calculate your interest on the investment. For each mode of investment, the calculation of interest is done in a different way. An FD calculator helps in calculating the interest and getting prior knowledge about the returns, which helps you in taking a proper course of action.