Interest on Fixed Deposits – Earlier the TDS limit for interest on Fixed Deposits was Rs. 10,000/- but as per Union Budget 2019, the TDS limit is increased to Rs. 40,000. This will be beneficial for depositors. TDS is deducted at 10% of the income.
If PAN has not been provided, TDS will be deducted at rate of 20% of the interest income.
Interest on Savings bank – no TDS is deducted by bank.
Interest on post office – same as fixed deposits.
Tax rate applicable for interest income
However, even if there is no TDS deducted, the interest income will need to be offered to tax in the Income Tax return. The income will be taxable at the rate that applies to the individuals overall income.
For example, if an individual’s income is Rs. 8,50,000 before interest from savings is considered. Then interest on savings will be added to Rs. 850,000 and taxed at 20% that applies to the individual because he is in the tax slab of 5 lacs to 10 lacs for AY 2019-20.
Exemption for interest income
Section 80 TTA, interest of Rs. 10,000 from savings account is tax free. The amount of interest will have to be included in the tax return and relief claimed under Section 80 TTA upto Rs. 10,000.
Section 80 TTB, interest of Rs. 50,000 on both savings account, fixed deposits and post office deposits is tax free only for Senior Citizens. The amount of interest will have to be included in the tax return and relief claimed under Section 80 TTB.