Bank interest is taxable under ‘Income from other sources.
However, a deduction of up to Rs. 10,000/- is available under section 80TTA.
Generally, taxpayers do not evaluate or disclose interest earned from saving bank accounts while filing Income-tax returns. It is always better to disclose this and take advantage of the deduction available under section 80TTA.
It is important to update the savings bank account statement for a financial year from the bank. The credit side of the statement is for receipts while the 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 2020, Rs.23,000/- as interest for 6 months credited on 31st December 2020 and Rs. 12,000/- as interest for 6 months credited on 30th June 2021.
Now, for the F.Y. 2020-21, interest is to be calculated from April 2020 to March 2021.
Hence, the interest income of Mr Rajesh can be calculated as follows:
- Rs 25000 x 3/6 = Rs 12,500/- for the period of 1st April 2020 to 30th June 2020
- Rs 23000/- for the period of 1st July to 31st December 2021,
- Rs 12,000 x 3/6 = Rs 6,000/- for the period of 1st April 2020 to 31st March 2021.
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 Rajesh will have to pay tax on the remaining Rs. 31,500/- as per the slab rate applicable to him.
Taxpayers can either declare interest earned from savings accounts to the employer and ask for deduction in TDS, or consider it while filing the Income-tax returns and pay the taxes by way of Self Assessment tax.