It is imperative to know how the interest earned on specific instruments that qualify for income tax deduction is taxed. Not all investments that qualify for tax deduction under Section 80C enjoy EEE status for income tax purposes. Taxation makes a big impact on your net income returns on your investments. Especially those who fall under the highest tax bracket should pay focus on taxation as well while investing. Here's a guide on how the interest income on different investments taxed.
How is interest on savings bank account taxed?
Interest on savings bank account is taxed as 'Income from other source' as per the tax slab rate applicable to the tax payer. However, under section 80TTA, interest earned upto ₹10,000 per year is allowed as deduction. This limit of ₹10,000 includes interest from all savings accounts with banks, co-operative banks, and post offices. If the interest earned from these sources exceeds ₹10,000, the additional amount will be taxable.
How is interest on bank FD taxed?
Interest income from a bank fixed deposit is fully taxable as 'Income from other source.' The interest income is taxed at the applicable tax rates. Banks also deduct a 10% tax at source (TDS) at the time they credit the interest to your account. If you fall in a higher tax bracket, you will need to pay additional tax.
How is interest on Public Provident Fund (PPF) taxed?
PPF qualifies for income tax deduction under section 80C of the Income Tax Act upto ₹1.5 lakh in a financial year. Interest received is exempt from tax and there is no tax on the amount received on maturity of the account. It enjoys EEE status.
How is interest on National Savings Certificate (NSC) taxed?
Amount invested in NSC is eligible for deduction under Section 80C of IT Act. The interest on NSC accrues annually, which gets reinvested and hence no tax liability on yearly accrual. But, at the time of maturity, interest received is liable to tax under the head ‘Income from other source’. This tax will be subject to the income tax slabs applicable to an individual.
How is interest on KVP taxed?
KVPs, best known to double your money in 10.4 years do not enjoy any taxation incentives. Interest on KVP is taxable on accrual basis and will be taxed as Income from other sources.No tax is deducted at source. The investments doi not qualify under Section 80C.
How is interest on Sukanya Samriddhi Yojana taxed?
Just like PPF, the Sukanya Samriddhi Yojana, a special investment scheme by government for gild child, falls in the exempt-exempt-exempt (EEE) investment category, which means you do not have to pay any taxes on your investment, the interest earned and on maturity. The investments under SSY qualify for tax deduction under Section 80C.
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