What is intrest income exempted from income tax fy 2019?
Answers
Answer:
Some investors may have more than Rs 40,000 interest income in a year, but their Total Income (including interest income) is less than the minimum exempt income (Rs 2.5 lakh for FY 2019-20). When there is no tax payable by the individual, the bank cannot deduct TDS.
1. How is interest income taxed?
Interest income from Fixed Deposits is fully taxable. Add it to your total income and get taxed at slab rates applicable to your total income. You can see it under the head ‘Income from Other Sources’ in your Income Tax Return. This Tax is Deducted at Source by the bank at the time they credit the interest to your account, and not when the FD matures. So, if you have a FD for 3 years – banks shall deduct TDS at the end of each year. (See below for more details on TDS on FDs).
Understanding TDS : When you receive certain payments the person paying you has to deduct tax before making the payment. This tax deducted is called TDS, which they pay to the Central Government. You will receive the amount net of tax. You then have to add the gross amount to your income and adjust TDS against your final tax liability.
2. How to calculate tax on interest income?
Add the interest income to your total income in your Income Tax Return each year (even though, it may not be paid out). See which tax slab rate you fall into. Match it with the yearly TDS deduction at the bank’s end. The Income Tax Department will adjust the TDS (which has already been deducted) against your final tax liability.
Even when no TDS is deducted include the interest income in your total income and pay tax on it. Suppose you wait until the maturity of your FD when interest is actually received– your total interest income may push you up to a slab and you may end up paying the higher tax.
Do you know ClearTax can automatically import all your TDS entries from the IT Dept at the time of filing your Returns.This means you will not miss out on adjusting any of the entries. You can view the details of TDS deducted on any of your income by viewing your Form 26AS.
Let’s understand this by way of an example:
Ritwik falls in the 20% tax bracket. He has 2 Fixed Deposits with a bank of Rs 1,00,000 each for a period of 3 years @ 8% interest per annum. In the first year, Ritwik’s interest income is Rs 8,000 from each of the FDs, total interest accrued is Rs 16,000 in the first year. Bank deducts TDS @ 10% of Rs 800 on both the FDs.