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How much of Bank deposits are taxable

Irrespective of whether it is savings account or fixed deposit, tax is calculated on the interest paid by the bank to a depositor in a given year. In other words, Bank deposits are taxable not only on the amount of deposit but also on the interest paid by banks for savings and other types of accounts.

If Interest paid is less than Rs. 10,000 then no tax will be deducted. If it is more than Rs. 10,000 then Tax Deducted at Source (TDS) of 10% will be deducted by banks for interest paid more than Rs. 10,000 i..e, if total of Rs. 22,000 is paid as interest by bank then TDS of 10% will be deducted for Rs. 12, 000 and not for Rs. 22,000.

Once TDS is deducted, you have to assume that it is paid by bank to IT authorities. So when you declare your income for the concerned financial year then you have to add Rs. 12,000 to the taxable income and calculate the total tax payable. From this deduct the TDS paid by bank to get final tax liability for that financial year.

In a sample case, let us assume 4.00% p.a. is interest given by bank for savings account then somebody who maintained an average balance of Rs. 10.0  Lakh per year will be getting Rs. 40,000 as total interest out of which taxable portion is Rs. 30,000 only. 10% i.e., Rs. 3,000.0 will be deducted as TDS by bank. This Rs. 3,000 can be treated as tax paid by the depositor hence he can deduct this from his annual tax liability.