All those incomes which are not covered in any of the four heads of income namely salary, house property, capital gains and business and profession are included in the head of income from other sources.
Interest on Bank Saving Account
Bank interest is taxable under ‘Income from other sources.
However, the deduction up to Rs. 10,000/- is available under section 80TTA for individuals and HUF and the deduction up to Rs. 50,000/- is available under section 80TTB for senior citizens.
Example: Mr Manish has earned Rs. 25,000/- as interest for 6 months credited on 30th Oct. 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 31st March 2021.
Now, for the F.Y. 2020-21, interest is to be calculated from April 2020 to March 2021.
Therefore total interest to be included in the return is Rs. 60,000/- (25,000 + 23,000 + 12,000).
Now, from this Rs. 60,000/- interest income, a deduction of Rs. 10,000 is available under section 80TTA. So, Mr Manish will need to pay tax on the remaining amount Rs. 50,000/- as per the slab rate applicable to him.
Interest on Term Deposits
Interest from both fixed deposit and recurring deposits is taxable and they are shown under income from other sources.
Banks are required to deduct tax when interest income from deposits in the bank is more than Rs.40,000 in a year. A 10% TDS is deducted if PAN details are available.
If you are receiving a pension on behalf of a deceased person, then you have to 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 than the Family Pension Income. It will be added to the income of the taxpayer and the tax should be paid at the tax rate which is applicable.
Interest received on Income-tax refund
Under Section 244A of the Income-tax Act, a taxpayer is entitled to interest at 0.5% for every month (6% per annum) from the first day of April of the assessment year to the date on which the refund is granted, where the refund arises on account of tax deduction at source (TDS) or advance-tax payment.
You have received interest on delayed refund of Income-tax then that interest is taxable under the "Income from other sources".
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