1.
Heads of Income
The Income Tax Department breaks down income into five heads of income for the
purpose of income tax reporting:
Income from Salary
Income from House Property
Income from Capital Gains/Loss
Income from Business and Profession
Income from Other Sources
Income from Other Sources covers income that does not fall under any of the other
heads of income.
2. Savings Bank Account – Interest Income
Interest that gets accumulated in your savings bank account must be declared in your
tax return under income from other sources. Do note that bank does not deduct TDS on
savings bank interest.
Interest from both fixed deposit and recurring deposits is taxable while interest from
savings bank account and post office deposits are tax-deductible to a certain extent. But
they are shown under income from other sources.
Interest income from a savings bank account or a fixed deposit or from a post office
savings account are all shown under this head.
3. Deduction on Interest Income
Under Section 80TTA
For a residential individual (age of 60 years or less) or HUF, interest earned upto Rs
10,000 in a financial year is exempt from tax. The deduction is allowed on interest
income earned from:
savings account with a bank;
savings account with a co-operative society carrying on the business of banking;
or
savings account with a post office
Senior citizens are not entitled to benefits under section 80TTA.
4. Tax on Fixed Deposits
Fixed deposit interest that you receive is added along with other income that you have
such as salary or professional income, and you’ll have to pay tax on that income at a tax
rate that’s applicable to you. TDS is deducted on interest income when it is earned,
though it may not have been paid.
Example: The bank will deduct TDS on interest accrued each year on a FD for 5 years.
Therefore, it is advisable to pay your taxes on an annual basis instead of doing it only
when the FD matures.
Senior citizens, with effect from 1 April 2018, will enjoy an income tax exemption upto
Rs 50,000 on the interest income they receive from fixed deposits with banks, post
offices etc under Section 80TTB.
5. Avoiding TDS on Fixed Deposits
Banks are required to deduct tax when interest income from deposits held in all the
bank branches put together is more than Rs.40,000 in a year (Prior to FY 2019-20, it
was Rs.10,000). A 10% TDS is deducted if PAN details are available. It is 20% if the
bank does not have your PAN details.
The details of TDS deducted on Fixed Deposit Interest is in the Form 26AS.
If your total income is below the taxable limit, you can avoid tax deduction on fixed
deposits by submitting Form 15G and Form 15H to the bank requesting them not to
deduct any TDS.
Form 15H is for senior citizens (60 years or older);
Form 15G is for everybody else.
These forms are for residents only and for those whose taxes add up to zero. These
forms must be submitted at the start of the financial year. If you missed submitting them,
then you can claim a refund by filing an income tax return.
These forms are valid for one year only. Therefore, they must be submitted each year to
keep banks from deducting tax.
6. Reporting Fixed Deposit and Recurring
Deposits in Your Tax Return
Reporting Fixed Deposits
If you have three FDs open, then add up all the interest income and enter it under
‘Other interest income’.
Reporting recurring deposit
Starting June 2015, when interest income from all the branches of the bank including
from recurring deposits, exceeds Rs.10,000 in a financial year, a 10% tax on interest
earned will be deducted. The interest earned should be shown in ‘income from other
sources.
7. Exempt Income
The PPF and EPF amount you withdraw after maturity is exempt from tax and must be
declared as exempt income from income from other sources.
Note that: The EPF is only tax exempt after five years of continuous service.
Read in detail the rules of EPF withdrawal and taxability thereof.
[Link] Pension
If you are collecting pension on behalf of someone who is deceased, then you must
show this income under income from other sources. There is a deduction of Rs 15,000
or one-third of the family pension received whichever is lower from the Family Pension
Income. This will be added to the taxpayer’s income and tax must be paid at the tax rate
that is applicable.
9. Taxation of Winnings from Lottery, Game
Shows, Puzzles
If you receive money from winning the lottery, Online/TV game shows etc., it will be
taxable under the head Income from other Sources. The income will be taxable at the
flat rate of 30% which after adding cess will amount to 31.2%
10. Expenses allowed to be deducted from
certain income sources
Similar to freelancers and business who can deduct certain expenses from their income,
a taxpayer earning income from other sources can claim deductions for expenses as
given below:
Commission or remuneration for realising dividends (if not covered under Section 115-O
which is exempt) or interest on securities: If any money or commission has been paid
for realising a dividend, such expenses are allowed to be deducted from the dividend
income which is taxed as income from other sources.
Expenses (not capital expenses) such as repairs, insurance premium, and depreciation
in respect of plant, machinery, furniture and buildings are deductible from rental income
earned by letting out of plant, machinery, furniture and building. The rental income from
the plant and machinery is chargeable to tax under income from other sources. The
expenses incurred in respect of such plant and machinery are allowed to be deducted.
A standard deduction is allowed on family pension, i.e. a deduction which is the lower of
Rs.15,000 and one-third of such income is available in case of income in the nature of
family pension which is paid monthly to the family members of a deceased employee.
In case, interest on compensation or enhanced compensation is received, 50% of the
interest is allowed to be deducted (applicable starting from the assessment year 2010-
11).
As per Section 57(iii), a deduction is allowed for any other expense (which is not a
capital expense) which has been spent wholly and exclusively for making or earning
such income.
11. Frequently Asked Questions
I have received dividend from an Indian company this year. Is this taxable as
income from other sources?
No. Please note that dividend income received from an Indian company is exempt
under Section 10(34) of the Income-tax Act, 1961 and need not be shown under
“other sources” as income but must be shown under “Exempt income” in your tax
return.
However, a taxpayer other than a company, in receipt of dividend in excess of Rs
10 lakhs is liable for income tax on such income at the rate of 10%
What is the tax treatment of dividend received from a foreign company.
Only dividend received from an Indian company is exempt from income tax in India.
Dividend received from a foreign company is taxable as “Income from other
sources” and you need to pay taxes at rates based on the income slab you fall
under.
Is dividend received from mutual funds taxable?
Dividend received from mutual funds is also exempt from income tax under Section
10(35) of the Income-tax Act, 1961.
I have received prize money worth Rs 2 lakhs by participating in a game
show. Is this taxable?
Yes. Prize money received from participating in game shows in taxable as income
from other sources. Generally, taxes at source would be deducted on such sum at
the time of payment to you itself at the rate of 30%. Even if taxes have not been
deducted, you may pay taxes on such income based on rates applicable to the
income slab you fall under.
I have interest income from a fixed deposit, a recurring deposit and a savings
account. What is the taxability? Do I have an deductions available on such
income?
All such interest income is taxable under “Other sources”. You will be liable to tax
based on your income slab.
Further, you enjoy a deduction upto Rs 10,000 on interest received from savings
account and recurring deposits. While senior citizens get a deduction upto Rs
50,000 on their interest income from fixed deposits.
On the occasion of my marriage, I received Rs 1 lakh in cash from my father.
Will this sum be taxed?
Money received from a “relative” is not taxable under the Indian tax laws. Further
“relative” includes father. Therefore, you will not be taxed on this sum you have
received.
Can I deduct expenses from ‘income from other sources’?
Yes, you can deduct expenses directly related to getting that income.
What are tax-saving FDs?
The tax-saving FDs come with a lock-in of 5 years. The amount you invest can also
be claimed as deduction under Section 80C subject to a maximum limit of
Rs.1,50,000. But like a regular FD, the interest is fully taxable.
I earn income solely from fixed deposits. Do I have to file an income tax
return?
Any individual whose income exceeds Rs.2,50,000 during a financial year must file
an income tax return in India. If the bank has deducted TDS and your income does
not exceed Rs.2,50,000, then you must file a tax return to claim a refund on excess
TDS deducted.