Bank interest is taxable under ‘Income from other sources.
However, a deduction upto Rs. 10,000/- is available under section 80TTA.
Generally taxpayers do not evaluate or disclose interest earned from saving bank account while filing Income-tax returns. 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. 2017-18, interest is to be calculated from April 2017 to March 2018.
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 2017 to 30th June 2017
- Rs 23000/- for the period of 1st July to 31th December 2017,
- Rs 12,000 x 3/6 = Rs 6,000/- for the period of 1st April 2017 to 31st March 2018.
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.