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Do I need to pay tax on interest income? How is it classified?

Filling out income tax forms can be daunting. You need to understand your salary structure, your tax slab features and various other clauses of the Income Tax Act 1961 fairly well to ensure you minimise your tax liability. Now, while filing your ITR, commonly known as ITR, you need to fill out the information under three categories:

  • Income from salary or pension
  • Income from property
  • Income from other sources

While the first two are self-explanatory, in this post, we’ll look at the third component: Income from other sources. 

What are these ‘other sources’? 
To put it simply, these ‘other sources’ include the remainder income that doesn’t fall under the other two income categories. It covers money earned in interest from:

  • Savings bank account
  • Post office savings account
  • Fixed deposit
  • Recurring deposit
  • Family pension

Section 80TTA allows you to claim a deduction of up to ₹10,00 on this interest income. If the cumulative interest on all these accounts is more than ₹10,000, the difference will be taxable under the Income Tax Act. 

Interest on bonds: The interest received from these investments are taxed differently, varying on the nature of your investment. For instance, if you have invested in a gold bond, be prepared for your interest income to be taxed. But, on the other hand, bonds that are floated by government undertakings are free from the need of paying tax on their interest earnings. Government undertakings such as NTPC, IREDA, NHPC, issue bonds that are completely tax-free.

So, you must enquire before buying any bond whether the interest you have earned on them is exempted from income tax or not. 

Interest on PPF: Credited annually into your account, the interest earned on PPF is free from tax payment. That said, you would still need to declare this while filing your returns every fiscal.

Interest from Post Office account: Interest received on your post office savings account is taxable. The interest earned on a post office account is entirely taxable though you can claim deductions up to ₹10,000 under Section 80TTA of the ITR. 

Now, certain schemes have been floated by the post office that are free from tax deduction at source (TDS) and therefore, you should know about these: 

a) Post Office Recurring Deposit Account
b) Post office time deposits
c) Post Office Monthly Income scheme
d) Kisan Vikas Patra
e) National Savings Certificates 

After filling in all your income details along with that from other sources (as described above), you need to fill all the deductions to be claimed from Section 80C to Section 80U. 

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