Sukanya Samriddhi Yojana, PPF, Bank FD: How is interest income taxed?
For those investors who want to make safe investments irrespective of not so lucrative returns, bank fixed deposit (FD), Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY) and similar other small savings schemes that offer guaranteed returns are their solutions. However, it is crucial to know the amount of tax that you will have to pay on income generated from these investments. Not all investments that qualify for tax deduction under Section 80C enjoy EEE status for income tax purposes.
What is EEE?
EEE stands for exempt, exempt, exempt. Here, the first exempt means that your investment is allowed for a deduction. So, you don’t have to pay tax on part of the salary that equals the invested amount. Similarly, the second exemption implies that you don’t have to pay any tax on the returns earned during the accumulation phase. The third and final exempt means that your income from the investment would be tax-free in your hands at the time of withdrawal.
EEE status is generally enjoyed by long-term investment vehicles, such as Public Provident Fund and Employees Provident Fund.
Let’s take a look at how the interest income on different investments taxed.
How is interest on bank FD taxed?
Interest income from a bank fixed deposit is fully taxable. Bank charges 10% TDS on the interest generated on the investment made in FD.
How is interest in PPF taxed?
PPF qualifies for income tax deduction under section 80C of the Income Tax Act. There is no charge on the interest generated from the investment even after maturity.
