The Income Tax Department breaks down income into five heads of income for the purpose of income tax reporting:
Income from Other Sources covers income that does not fall under any of the other heads of income.
Interest that gets accumulated in your savings bank account must be declared in your tax return under income from other sources. Do note that bank does not deduct TDS on savings bank interest.
Interest from both fixed deposit and recurring deposits is taxable while interest from savings bank account and post office deposits are tax-deductible to a certain extent. But they are shown under income from other sources.
Interest income from a savings bank account or a fixed deposit or from a post office savings account are all shown under this head.
For a residential individual (age of 60 years or less) or HUF, interest earned upto Rs 10,000 in a financial year is exempt from tax. The deduction is allowed on interest income earned from:
Senior citizens are not entitled to benefits under section 80TTA.
Fixed deposit interest that you receive is added along with other income that you have such as salary or professional income, and you’ll have to pay tax on that income at a tax rate that’s applicable to you. TDS is deducted on interest income when it is earned, though it may not have been paid.
Example: The bank will deduct TDS on interest accrued each year on a FD for 5 years. Therefore, it is advisable to pay your taxes on an annual basis instead of doing it only when the FD matures.
Senior citizens, with effect from 1 April 2018, will enjoy an income tax exemption upto Rs 50,000 on the interest income they receive from fixed deposits with banks, post offices etc under Section 80TTB.
Banks are required to deduct tax when interest income from deposits held in all the bank branches put together is more than Rs.10,000 in a year. A 10% TDS is deducted if PAN details are available. It is 20% if the bank does not have your PAN details.
The details of TDS deducted on Fixed Deposit Interest is in the Form 26AS.
If your total income is below the taxable limit, you can avoid tax deduction on fixed deposits by submitting Form 15G and Form 15H to the bank requesting them not to deduct any TDS.
Form 15H is for senior citizens (60 years or older);
Form 15G is for everybody else.
These forms are for residents only and for those whose taxes add up to zero. These forms must be submitted at the start of the financial year. If you missed submitting them, then you can claim a refund by filing an income tax return.
These forms are valid for one year only. Therefore, they must be submitted each year to keep banks from deducting tax.
If you have three FDs open, then add up all the interest income and enter it under ‘Other interest income’.
Starting June 2015, when interest income from all the branches of the bank including from recurring deposits, exceeds Rs.10,000 in a financial year, a 10% tax on interest earned will be deducted. The interest earned should be shown in ‘income from other sources.
The PPF and EPF amount you withdraw after maturity is exempt from tax and must be declared as exempt income from income from other sources.
Note that: The EPF is only tax exempt after five years of continuous service.
If you are collecting pension on behalf of someone who is deceased, then you must show this income under income from other sources. There is a deduction of Rs 15,000 or one-third of the family pension received whichever is lower from the Family Pension Income. This will be added to the taxpayer’s income and tax must be paid at the tax rate that is applicable.
If you receive money from winning the lottery, Online/TV game shows etc., it will be taxable under the head Income from other Sources. The income will be taxable at the flat rate of 30% which after adding cess will amount to 30.9%
However, a taxpayer other than a company, in receipt of dividend in excess of Rs 10 lakhs is liable for income tax on such income at the rate of 10%
Further, you enjoy a deduction upto Rs 10,000 on interest received from savings account and recurring deposits. While senior citizens get a deduction upto Rs 50,000 on their interest income from fixed deposits.