The interest that gets collected in your savings bank account must be declared in your tax return under Income from other sources. It is necessary to note that the bank does not deduct TDS on savings bank interest.
Interest from both fixed deposits and recurring deposits is taxable while interest from savings bank accounts and post office deposits are tax-deductible to a certain point. However, they are shown under the Income from other sources category.
Interest income from a savings bank account or a post office savings account or a fixed deposit account are all shown under the same head.
For a residential individual under or till the age of 60 years or a HUF, the interest earned up to Rs 10000 in a financial year is exempted from tax. The deduction is allowed on interest income earned from:
- Savings account with a bank
- Savings account with a co-operative society carrying on the business of banking
- Savings account with a post office
Senior citizens that are above the age of 60 are not entitled to the tax benefits under Section 80TTA
Taxation on fixed deposits
The interest received from fixed deposits is added along with other income that you have like salary or professional income, and you will be required to pay tax on that income at a tax rate that is applicable to you. The deduction of TDS on interest income when it’s earned even though it might not have been paid.
Preventing TDS on fixed deposits
Banks are needed to deduct tax when interest income from deposits held in all the bank branches put together is more than Rs 40,000. Prior to the financial year 2019-20, the amount was Rs 10,000. A 10% TDS is deducted if PAN details are available. In case the bank does not have your PAN details, it becomes 20%. The details of TDS deducted on fixed deposit interest is in Form 26AS. In case your total income is below that taxable limit, you can avoid the tax deduction on fixed deposits by submitting Form 15G and Form 15H (for senior citizens) to the bank requesting not to deduct TDS.
These forms should be submitted at the beginning of the financial year. In case you miss the deadline, you can claim the refund by filing an income tax return. These forms are valid for only a year.
Reporting fixed deposit Tax Return
In case you have three fixed deposits open, then add up all the interest income and enter it under the ‘Other interest income’ category.
Reporting recurring deposit Tax Return
From June 2015, when interest income from all the branches of the bank including from recurring deposits, are more than Rs 10,000 in a single financial year, a 10% tax on interest earned will be deducted. The interest that is earned should be shown under ‘income from other sources’