Quick Insights on Calculating Income Tax on Your Interest Income

You should be aware that the interest earned above and over a certain or fixed limit invites income tax deductions on receivable interest income. However, not many people are aware or sure how to calculate income tax on interest income. As a result, their interest income keeps getting charged under the tax. Are you also unaware of how to calculate income tax on your salary? For calculating the taxable income on your salary, you can also use the online income tax calculator India facility free at lender’s websites. Some of the tools such as fixed deposits, post office schemes, savings account, and recurring deposits earn interest income. As a result, you should report about them while filing your income tax returns or ITRs. rnYou should also know that the income tax could be hard to deal with, but it is also unavoidable. In the same context, let’s hand out some relevant information on how you may calculate income tax on your interest income. Tax on interest income at a glance 1) Savings account The earned interest on a savings account is taxable as per the income tax slabs as applicable to an investor. However, you can claim deductions up to a maximum of Rs.10,000 as per the Section 80TTA per year. This deduction can only be claimed by an individual and Hindu United Family (HUF). This is applied for the bank’s savings account, co-operative and post office accounts. 2) Fixed deposits (FDs) Fixed deposit is one of the most popular investment options in India. The fixed deposit’s earned interest is also applicable to be taxed as per the abiding slab rates. The interest on fixed deposits is entirely taxable at income tax slabs as applicable. Compared to the savings account, there is nothing called separate deduction of Rs.10,000 as in the Savings account interest. TDS rates on fixed deposits: - @ 10% on earned interest to residents - @ 20% charged in the absence of PAN or valid PAN - @ 30.90% to non-residents Indians (NRIs) 3) Recurring deposits Recurring deposit is also a viable investment scheme that many Indians invest their money in and earn interest income. However, recurring deposits does attract income tax deduction at the rate of 10% of the earned interest. During the earlier times, the TDS was not known for recurring deposits. However, from 1st June 2015, the provision of TDS on recurring deposits was added @ 10%. It was done as per the applicable clauses of the Section 194A of the Income Tax Act. Read Also: How to Calculate Income Tax on your Salary? 4) PPF PPF (Public Provident Fund) is yet another investment scheme supported by the Indian Government that an individual can invest for a minimum period of 15 years. The rate of interest gained on it is also higher than other tools. In short, people invest in PPF for retirement and long-term financial purposes. The interest rates paid on the PPF account remains completely exempted or free from tax without any limits. It is confirmed as per the announcement made in the Union budget of 2016. The interest on the PPF gets compounded on a yearly basis. The interest calculation is done every month. As a matter of fact, both the earned interest and PPF withdrawals are totally tax-free or exempted. Hence, if you are looking to help your money grow more, you should open a PPF account with your bank and other institutions. Some of the significant ways via which you can calculate income tax on your interest income are now revealed. As per your investment profile, if any, you may be sure of how much tax would be paid or saved. All the best!