Is Salary Account Interest Taxable in India?
One important aspect of having a Salary Account in India is the interest income that it generates. It's crucial to understand the tax implications associated with the interest earned on Salary Accounts. Below mentioned are the details about whether salary account interest is taxable in India by providing clarity on the subject.
Is Salary Account Interest Taxable?
In India, the interest income earned on a salary account is taxable under the Income Tax Act, 1961. The interest earned is considered a part of an individual's taxable income and is subject to income tax as per the applicable income tax slab.
It's important to note that the interest income in a salary account is classified as "income from other sources" for tax purposes. This means that the interest earned is not categorized as a part of the salary income but is treated separately. The interest income is added to the total taxable income of the individual and taxed accordingly. Hence, it's essential for individuals to keep track of the interest earned on their salary accounts and ensure accurate reporting of the same while filing their income tax returns. The interest income should be included in the "income from other sources" section of the tax return and declared to the tax authorities.
Taxability of Salary Account Interest
- Tax Deducted at Source (TDS): Banks need to make a TDS (tax deducted at source) on the interest income of individuals from their Salary Accounts. If the total interest income exceeds the pre-specified limit, TDS is made at the prevailing rates. Presently, as per the Income Tax rules, if the interest income from a salary account exceeds Rs. 10,000 in a financial year, the bank is required to make a TDS at the rate of 10% before crediting the interest to the account.
- Form 26AS: The deducted tax amount is reflected in the Form 26AS, which is a consolidated tax statement that can be accessed by the account holder to review the details of tax deducted.
- Income Tax Returns (ITR): Individuals must include the interest income earned from Salary Accounts while filing their income tax returns (ITR). The interest income is reported under the head "Income from Other Sources" in the ITR form.
Exemptions and Deductions
It's important to note that all interest income is not taxable. Under certain circumstances, exemptions and deductions may also be applicable which reduces the taxable amount. Outlined below are some of the common exemptions:
Section 80TTA: As per Section 80TTA of the Income Tax Act, individuals are allowed to claim a deduction of up to Rs. 10,000 on interest earned in all their savings accounts (including Salary Account).
| Section | Section 80TTA |
|---|---|
| Eligibility | Individuals and HUF who are less than 60 years of age are eligible |
| Which type of interest income | Interest earned on savings account only |
| Where applicable | Section 80TTA can be applied only in case of savings accounts and not on term deposits, fixed deposits or recurring deposits. |
| Deduction Limit | Up to Rs 10,000 |
Section 10(15)(i): Interest income from some of the savings accounts such as those maintained with co-operative societies and post offices are exempted from taxation under Section 10(15)(i).
Endnote
The interest income earned on a Salary Account in India is subject to taxation. Banks deduct tax at source on the interest earned, and individuals must include this income while filing their income tax returns. However, exemptions and deductions may apply, reducing the taxable amount.