Generally taxpayers do not evaluate or disclose interest earned from saving bank account while filing Income-tax returns. It is taxable under ‘Income from other sources, however savings bank interest is exempt upto Rs. 10,000/-. It is always better to disclose this and take advantage of deduction available under section 80TTA.
It is important to update savings bank account statement for a financial year from the bank. Credit side of statement is for receipts while debit side is for payments. Interest earned shall reflect on the credit side. This interest might be for full year or half yearly or even quarterly. However interest for the whole financial year should be considered. Let us take an example: Mr. Rajesh has earned Rs. 25,000/- as interest for 6 months credited on 30th June 2015, Rs.23,000/- as interest for 6 months credited on 31st December 2015 and Rs. 12,000/- as interest for 6 months credited on 30th June 2016.
Now, for the F.Y. 2015-16, interest is to be calculated from April, 2015 to March, 2016.
Hence, interest income of Mr. Ramesh can be calculated as follows:
- Rs 25000 x 3/6 = Rs 12,500/- for the period of 1st April 2015 to 30th June 2015,
- Rs 23000/- for the period of 1st July to 31th December 2015,
- Rs 12,000 x 3/6 = Rs 6,000/- for the period of 1st April 2016 to 31th March 2016.
Therefore total interest to be included in the return is Rs. 41,500/- (12,500 + 23000 + 6,000).
Now, from this Rs. 41,500/- interest income, a deduction of Rs. 10,000 is available under section 80TTA. So, Mr. Ramesh will have to pay tax on the remaining Rs. 31,500/- as per the slab rate applicable to him.
Taxpayer can either declare interest earned from savings accounts to the employer and ask for deduction in TDS, or consider it while filing Income-tax return and pay the taxes by way of Self Assessment tax.
If you have any question regarding taxation of savings bank interest or any other Income-tax related query, raise it to us so that we can resolve to your satisfaction.