Generally people forget to include interest income while filing for an income tax return. The interest income which an individual earns is to be added under the head other sources i.e. the residual head.
Interest income is over and above from your income under the head salary, business, profession and house property etc.
Interest is included in the tax filing form if it has crossed the certain limits.
In this article, we will discuss that how to show the interest income which is subject to tax.
Interest earned from the saving bank a/c, post office schemes, recurring deposits etc are included but the people are not aware about how to report this in your tax return.
#1. Taxability of interest income
Generally, the interest income earned whether it is from FD or saving account, all are taxable.
Moreover, the interest income earned from bonds is also taxable.
TDS is to be deducted in a case where the interest income earned is more than Rs. 10,000.
The interest earned from saving account will never come under the scope of TDS.
Note: The interest income earned up to Rs. 10,000 from the saving a/c is exempt under section 80TTA. Also, the interest here allowed is only of saving a/c not of FD or any other account.
#2. How to include interest income from different sources in your income tax return
Every person has to file ITR every year reporting the income of the financial year which is subject to tax. The interest income is to be calculated to report that in ITR.
- National Saving Certificate: Under Section 80C, the amount which is invested in the NSC allows to earn you a tax break and the amount which is earned in the form of interest or return from NSC will be subject to a tax. The full amount of interest is to added to the investor’s taxable income and taxed as per the applicable slab rate & there is no TDS deduction on NSC interest payouts. It will also be included under the heading of income from other sources.
- Recurring Deposits: The tax treatment of interest earned from Recurring Deposit will be the same as it is of the Fixed Deposit. The TDS which is deducted from the interest earned through the recurring deposit is added to the taxable income. The income earned from the interest is also subject to the tax according to the tax slab. This interest will be categorised under the other sources of income. The taxpayer has to deduct the TDS.
- Saving Bank Account: Calculation of interest income from saving a/c is difficult task as it cannot be found in Form 16A or 26as. It is to be included on the estimate basis. As per tax slab applicable to the person the interest that he earns by depositing the cash in saving a/c is subject to tax. Under Section 80TTA he can claim a relief of up to Rs. 10,000 and if the interest earned by him from the saving bank a/c is less than the Rs. 10,000, then he is not required to pay any tax thereon. But if the amount of interest earned goes higher than the Rs. 10,000, then due to the amount over and above to Rs. 10,000 should be added to the taxable income under the head other sources. This tax technique is applicable to the entire saving bank a/c’s not only to the a/c which is linked to your tax filing a/c.
- Fixed Deposits: The interest earned from the investments which is done in fixed deposits is taxable income and it is taxed as per the applicable slab. After the deduction of TDS from the interest income, only then the interest will be paid and the income which is to be added to ITR should be added after the adjustment of TDS.
These above mentioned are the common sources of interest income that taxpayers require to compute and also include in their income tax returns.