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Tackling your interest payment receipts

Interest payment receipts often results in a lot of confusion for individuals. This can be simplified a bit by breaking up the interest payments into specific types, writes Arnav Pandya.

india Updated: Jul 14, 2008 22:17 IST
Arnav Pandya

Interest payment receipts often results in a lot of confusion for individuals. These receipts are of different types and an individual is often unclear about the manner in which they have to account for the income received from them and the tax structure for this income.

This can be simplified a bit by breaking up the interest payments into specific types so that they are able to understand how the entire amount has to be treated.

Savings bank interest

This is one of the most irritating processes that should be undertaken by everyone in their tax working. Everyone has savings account in which they keep some money. An interest is earned on this amount and often the figure is very small. Each and every rupee of this amount is taxable in the hands of the receiver and hence this has to be accounted for in the tax working. Many times either people forget or it might be a big effort to go through three or four bank accounts and retrieve this figure but this is a necessity so the entire amount has to be added and then the required amount of tax has to be paid on this figure.

Maturing deposits and bonds

There are several bonds and deposits that are made in the middle of the year and they pay the required interest at a specified point of time. In such cases the interest for the period has to be accounted each year for the purpose of taxation because the entire amount is to be taxed. In most cases it is better for the person to ensure that the accrued interest for the year is taken into the tax calculation and hence they will need to work out the calculations. This requires looking at the rate of interest and the time period for the year, which is left after the last interest payment.

Accrued interest

This is probably the toughest part of the entire working because interest can be accrued on various instruments that do not show up in the bank because the payment comes at a later date. In such a case, there has to be a working that will estimate the interest for that particular year and then take this figure into consideration. In some instruments like the National Savings certificate the workings figure is already given so the person just has to apply the rates.