Interest on Saving Bank Account and Fixed Deposits- Is it Taxable?

Interest on Saving Bank Account and Fixed Deposits

If you have a savings bank account or a fixed deposit, you are probably earning interest from it. If you want to get a good idea of what is the tax payable on this interest and how to show this interest income in your Income Tax Return, read on.

Interest on Saving Account

Is interest on savings bank account taxable?

Interest earned on your saving bank account is subject to Income tax under the Head “Income From Other Sources”. However, there is a special deduction of Rs. 10,000/- under section 80TTA available for this interest income. As a result, you have to pay tax on interest on your saving bank accounts, only if the total interest amount exceeds Rs. 10,000/- in a financial year.

Interest earned up to Rs. 10,000/- will be completely tax-free.

However, if you are a senior citizen, the Income Tax Act has made the deal even sweeter for you. Senior Citizens can get a tax deduction up to Rs. 50,000/- per financial year under a new section 80 TTB (Introduced from Financial Year 2018-19). This deduction is available for interest on savings account as well as any other deposit like Fixed Deposit etc.

80TTA Deduction

Who can claim deduction under section 80TTA?

Benefit under section 80TTA is available only to resident individuals (who are not senior citizens) and HUF.  As a result, this deduction is not available to Non-Resident Indians (NRIs) and senior citizens (who need to claim it under section 80TTB.

Is there any TDS on saving bank interest?

Unlike fixed deposits, Banks do not deduct any TDS on interest credited for a savings bank account. Accordingly, you will have to be careful to include this interest in your income tax return and pay tax on it, if it exceeds Rs. 10,000/- (for senior citizens Rs.50,000/-).

RELATED  PF in salary [Ultimate Guide]

Which accounts are eligible for 80TTA?

For 80 TTA, interest earned only on Savings Bank Account with the following institution(s) is eligible for deduction:

  • Bank
  • Co-operative Society engaged in banking business
  • Post office

Income Tax on Interest on Fixed Deposits

What is the tax payable for interest earned on fixed deposits?

Any interest earned on fixed deposits is fully taxable (if you are not a senior citizen) and Banks are required to deduct TDS (at the rate of 10%) on this interest payment. TDS is deducted by banks only in case the amount exceeds Rs. 10,000/-. (Note: This limit is increased to Rs.40,000 in Budget 2019 applicable from FY 2019-20). However, the complete income is taxable, so you need to be careful about paying the balance tax if TDS does not cover your tax liability (See Illustration Below)

However, for a senior citizen, it is tax free up to Rs. 50,000/- under section 80TTB.

Who can claim deduction under section 80TTB?

The deduction under section 80 TTB is available only to resident senior citizens. 

Which accounts are eligible for 80TTB?

For 80TTB, interest earned on any deposit (including fixed deposits) with following institutions is eligible for deduction:

  • Bank
  • Co-operative Society engaged in banking business
  • Post office

How to show the interest income in your Income Tax Return- ITR -1?

Interest income on your saving bank account as well as Interest on Fixed Deposits is to be shown under the following head:

  • Income from Other Sources

For saving bank account interest, you need to fill the deduction amount under – Deductions under Chapter VIA- Section 80TTA

RELATED  80C investments for tax savings: 5 myths busted

Illustration

Taxability of Interest Income (Saving Account + Fixed Deposit) Not a
Senior Citizen
For Senior
Citizens
 
ParticularsInterest EarnedInterest Earned
Saving Bank
Interst on SBI Saving Account 6,723.00 6,723.00
Interest on Kotak Saving Account 2,830.00 2,830.00
Interest on HDFC Bank Account 3,500.00 3,500.00
Total Interest on Saving Account 13,053.00 13,053.00
Less:80 TTA Deduction 10,000.00 "Not eligible"
Taxable Interest on Saving Account (A) 3,053.00 13,053.00
Fixed Deposit
Interest on SBI Term Deposit 5,300.00 5,300.00
Interest on Canara Fixed Deposit 3,235.00 3,235.00
Interest on Fixed Deposit (B) - Fully Taxable 8,535.00 8,535.00
Less: TDS deducted by Bank@10%853.00853.00
Income From Other Sources
Total Taxable Interest on Saving Account + Fixed Deposit(A+B) 11,588.00 21,588.00
Less: 80TTB Deduction (Max Rs.50,000/- only for Senior Citizens- available on both interest and Saving account ) "Not eligible" 21,588.00
Net Taxable Interest 11,588.00 -
Tax @ 30% (assuming you are in 30% tax bracket) 3,476.40 -
Less: TDS deducted853.00853.00
Tax Paid / (-)Refund while filing the return 2,623.40 -853.00

SUBSCRIBE TO OUR FREE NEWSLETTER
Curious about money? Get knowledge packed updates with actionable information on Tax, Investing and Finance
We hate spam. Your email address will not be sold or shared with anyone else.
COMMENTS Please comment below. Your email id will not be published and is only used for authentication.

Leave a comment