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The following are the incomes which are need to be filed without fail during the process of ITR:
Interest on savings account is taxable as per Income tax slab rates applicable to the investor. However, deduction under section 80TTA is allowed on interest from savings account with a maximum of Rs.10, 000 – per year. This deduction is available only to individual and HUF. In 80TTA of the Income tax act, interest up to `10000 earned from all savings bank account is exempt from tax. This is applicable for savings bank account, post office or co-operative banks. If the interest earned from these sources exceeds Rs.10000, the extra amount will be taxable.
“TDS on saving interest is not deducted like fixed deposit and term deposit. But the account holder should calculate and declare the interest from all saving bank accounts during the financial year under the head ‘Income from other sources’ claim deduction u/s 80TTA and pay the tax accordingly.
Keeping minimum balance in savings accounts is suggested because the rate of interest is very low and it is also reduced by income tax payable: 2.8% per annum for person in 30% tax slab with 4% interest on saving account.
How Banks Compute Interest on Savings Account?
Many people are either unaware of the actual method of calculation of interest or are not updated with latest method being followed by financial institutions.
Older method: Earlier banks offered interest on the minimum balance available in the account in a month. For example, if you maintained a balance of over Rs. 1 lakh during the whole month barring one day when your balance fell down to Rs. 10,000. Then, the bank will pay you interest calculated on Rs.10, 000 only. However, now this has changed.
New method: Banks now offer interest which is calculated on a daily basis on the money lying in your account at the end of the day. As a result, customers are getting better benefits due to higher interest calculated on their deposits.
Interest earned from fixed deposits is liable to be taxed on accrual basis at the slab rate applicable. Interest on Fixed is fully taxable at Income tax slab rates applicable to the person. There is no separate deduction of Rs. 10,000/- as available in the Savings account interest. “As per Income Tax Act, 1961 u/s 194A (1) (3) (i) where the amount or aggregate of the amounts of interest credited or likely to be credited or paid during the financial year exceeds Rs.10, 000, TDS is applicable from the first interest flow”. Minors who hold deposits are also subject to TDS; the person in whose hands the minor’s income is included can claim the credit for the TDS.
TDS Rates on Fixed Deposits:
3.Tax on Mutual Funds:
The taxation of returns depends on the kind of funds you are investing. That is whether you are investing in debt or equity schemes. Also, the duration of your investments would depend whether you would qualify for short-term or long-term capital gains tax.
1. If you hold your debt investments for less than three years, returns are treated as short-term capital gains for taxation purpose. Short-term capital gains are added to the income and taxed according to the income tax slab applicable to the individual.
2. If you hold your debt investments for more than three years, returns would be considered as long-term capital gains and taxed at 20 per cent with indexation benefit.
Equity schemes (if the scheme invests more than 65 per cent of its corpus in equity, it would be treated as equity schemes for the purpose of taxation. Arbitrage funds are treated as equity schemes for the purpose of taxation. International funds, though they invest in stocks abroad, are treated as debt schemes for the purpose of taxation. Fund of funds is also treated as debt schemes for taxation purpose.)
If you sell your equity investments before a year, returns would be treated as short-term capital gains and taxed at 15 per cent.
If you sell your equity investments after a year, returns would be treated as long-term capital gains. Long-term capital gains of over Rs 1 lakh is taxed at 10 per cent without the indexation benefit.
4.Tax on Notional Income:
Of all taxable incomes, perhaps tax on rental income is most complicated as this is the only income that the Income Tax Act (ITA) taxes on a notional basis. In other words, the incidence of tax is based not only on the income earned from the property but also where no income is being earned, on the inherent potential of the property to earn income. Also, the exemptions and deductions differ as per the number of properties a person owns. Going by the number of emails we receive in the form of queries on this topic, this week we thought we should re-examine the subject in greater detail.
Basically, tax is applicable where there is income and essentially there can be only two kinds of incomes related to property – rental income and of course capital gains when property is sold.
The basis of calculating income from house property is the rental value. This is the inherent capacity of the property to earn income. As mentioned earlier, property income is perhaps the only income that is charged to tax on a notional basis. This charge is not because of the receipt of any income per se, but is on the inherent potential of the house property to generate income.
Minors can earn an income from bank accounts, fixed deposits or other investments made in their name by the parents. Any Income that accrues or is paid to a minor is clubbed with the Income of the parent under section 64(1A). ‘Clubbing’ means such Income gets added to the parent’s income and is taxed just like it is the Parent’s own income. So in case you are hoping to save tax by investing in the name of your children – such income will be added to your Income and taxed accordingly.
If both spouses are earning –The Income of the minor shall be clubbed with the income of the parent, whose total income (before inclusion of the minor’s income) is greater.
In case the marriage does not exist, the income of a minor shall be clubbed with the parent who maintains the child.
If both the parents are not alive the income of the minor child is not clubbed with the guardian, a separate income tax return is filed for the minor.
Exceptions – In the following cases the income of a minor child is not clubbed.
India is a country of close knitted families and having lot of reasons to celebrate owing to its diversified culture, customs and religion. Numerous occasions arise where gifts are exchanged. In fact gifting each other is a symbol of love and affection and can also be a symbol of social status. However, many a times gifts can also be a part of tax planning / tax evasion. While tax planning done within the framework of law is permissible, tax evasion is prohibited and can be penalised.
The Government introduced gift tax in April 1958 regulated by Gift Tax Act, 1958 (The GTA) with an objective to impose taxes on giving and receiving gifts under certain specific circumstances. Gifts in the form of cash, demand draft, bank cheques or anything having a value were covered. However, the GTA was abolished in October 1998 and made all gifts tax free. But, Gift Tax was reintroduced in a new form and included in the Income tax provisions.