Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: ARTICLES ON INPUT TAX CREDIT IN VAT :: empanelment :: list of goods taxed at 4% :: form 3cd :: VAT Audit :: ACCOUNTING STANDARDS :: articles on VAT and GST in India :: TDS :: cpt :: VAT RATES :: ACCOUNTING STANDARD :: Central Excise rule to resale the machines to a new company :: TAX RATES - GOODS TAXABLE @ 4% :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: due date for vat payment
 
 
« Indirect Tax »
 Clarification Regarding Filing of Offline Challans with IEPF Authority under Companies Act
 Cash deposits in Jan Dhan accounts drop after govt warning: income tax dept
 Indirect tax receipts to see small, brief hit’
 There is no tax on interest income of up to Rs3 lakh a year for senior citizens
 Chidambaram favours change in direct tax rates
  Further rationalization of revised simplified procedure for fixation of brand rates
 Kerala to accept demonetised banknotes for payment of state tax till Nov 24
 Centre-state gridlock over GST jurisdiction remains, could threaten tax rollout
 India to levy tax on investments from Cyprus from April 2017
 Why tax radar may detect your cash deposits after Nov 8
 Income tax notices to religious, charitable trusts

Do you how to calculate tax on your interest income
July, 07th 2016

Interest earned above a certain limit attracts tax deduction on interest income, but many individuals are not sure how tax is treated or how their interest income is getting charged under tax. Fixed deposits, savings account, post office schemes, recurring deposits earn income interest, which should be reported in one's income tax return. Tax can be very hard to deal with but it is also unavoidable.

TAX ON INTEREST INCOME

SAVINGS ACCOUNT: Interest on savings account is taxable as per Income tax slab rates applicable to the investor. However, deduction under section 80TTA is allowed on interest from savings account with a maximum of Rs.10,000/- per year. This deduction is available only to individual and HUF. In 80TTA of the Income tax act, interest upto `10000 earned from all savings bank account is exempt from tax. This is applicable for savings bank account, post office or co-operative banks. If the interest earned from these sources exceeds Rs.10000, the extra amount will be taxable. For example: Raahul earns Rs.8000 from his saving accounts, so he does not have to pay any tax for it. But Gaurav earns Rs.15000 from his savings accounts, so he needs to pay income tax on Rs.5000 according to his tax slab. "TDS on saving interest is not deducted like fixed deposit and term deposit. But the account holder should calculate and declare the interest from all saving bank accounts during the financial year under the head 'Income from other sources' claim deduction u/s 80TTA and pay the tax accordingly", says, Sudhir Kaushik, Co-Founder & CFO, TaxSpanner.com. Keeping minimum balance in savings accounts is suggested because the rate of interest is very low and it is also reduced by income tax payable: 2.8% per annum for person in 30% tax slab with 4% interest on saving account.

FIXED DEPOSIT: Interest earned from fixed deposits is liable to be taxed on accrual basis at the slab rate applicable. Interest on Fixed is fully taxable at Income tax slab rates applicable to the person. There is no separate deduction of Rs. 10,000/- as available in the Savings account interest. "As per Income Tax Act, 1961 u/s 194A (1) (3) (i) where the amount or aggregate of the amounts of interest credited or likely to be credited or paid during the financial year exceeds Rs.10,000/-, TDS is applicable from the first interest flow" adds Kaushik. Minors who hold deposits are also subject to TDS; the person in whose hands the minor's income is included can claim the credit for the TDS.

TDS RATES ON FIXED DEPOSITS:

Recurring Deposits attract tax deduction @10% of the Interest earned. Earlier, TDS was not charged on Recurring Deposits but from 1st June 2015 - TDS on Recurring Deposits @ 10% U/S 194A was added. One has the option to either reinvest the Interest earned on Recurring Deposits or to withdraw the Interest earned on Recurring Deposits. The TDS on Interest earned on Recurring Deposits is now the same as the TDS on Interest earned on Fixed Deposits. The current income tax slab rates can be divided into: Nil category; 10%; 20% & 30% category. One receiving the Interest on Recurring Deposit cannot claim any deduction on the same and tax would be charged on the full interest amount as compared to Interest on Savings Account on which a deduction of Rs. 10,000 is allowed.

BONDS: Corporate bonds are debt securities issued by private or public corporations. Interest on corporate bonds is taxable on accrual basis at slab rates. Interest will be charged according to method of accounting followed. "Generally, bonds are in demat form and listed, hence there is no TDS deduction. Thus no hassles of filing form 15G/H" adds Kaushik. "The difference between the purchase and sale price of the bond is treated as capital gains. The capital gains will be long term if these bonds are held for more than 12 months otherwise the gains will be short term. These are tax efficient if held for more than 1 year," says, Vaibhav Sankla, Director, H&R Block India. Capital gains are taxed on redemption of bonds; Short term capital gains - as per slab rates; long term capital gains - 10%, without indexation interest - As per slab rates. Bonds held for a period up to 12 months can result in short term capital gain that is taxed as ordinary income. Divya Baweja, Partner, Deloitte Haskins & Sells LLP says, "Investing in tax free bonds is considered as advantageous option as the interest received from tax free bonds is exempt under Section 10 (15) (iv) (h) of the Income tax Act, 1961 (the Act). Further investment in tax free bonds is also deliberated as risk free as the investment is made in government securities. Also if these bonds are redeemed upon maturity then the capital gain is taxable at a concessional rate of 10% (without indexation)."

EXEMPTION ON TDS CAN BE CLAIMED: By submitting 15G (below 60 Years) and 15H (60 years and above) exemption on TDS can be claimed. Your total taxable income can be claimed if interest during the financial year is not likely to exceed the maximum amount which is not chargeable to income tax presently Rs.250000 for person below 60 years, then you can submit self declaration in Form 15G. "In case the interest payable by the Bank during the financial year on time deposits is likely to exceed the maximum amount which is not chargeable to income tax, then the Form 15G submitted will be treated as invalid" says Kaushik. Senior Citizen can also claim exemption by submitting Form 15H. There is also penalty for declaration of false form 15G/H. For false or wrong form 15G penalty u/s 277 of the Income Tax Act is charged. Moreover, non-resident Indians cannot claim exemption of Form 15G for tax deduction. Non-resident Indians are also subjected to higher rate of interest @30.90%.

PPF/ EPF: Interest earned from Public Provident Fund remains fully exempted from tax without any limits, confirmed in the budget 2016. The interest on is compounded annually, with the calculation done every month. Both the interest earned and withdrawals from PPF are tax-free. Though PPF remains tax free, interest on EPF attracts charges from 1st April 2016. The main principal amount and withdrawals made is exempted from tax but 60% of the interest is taxable and the rest 40% stays exempted. Savings Account gives in the lowest interest as compared to Fixed or Recurring Deposits and hence it is advisable for an individual to not prefer to keep much amount in savings account as it earns very low interest.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Multi-level Marketing MLM India Affiliate Marketing Affiliate Marketing Software MLM Software MLM Solutions Multi level marketing solutions MLM Servi

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions