# Interest Income — Taxability under IFOS

## Taxable Interest Income

### A) Interest on Securities / Deposits / Loans

If not taxable under PGBP, → taxable under IFOS.
Deduction Allowed: Interest, brokerage, or any other expense incurred to earn such interest (similar to PGBP provisions).

### B) Interest on Bank Deposits

Interest on Savings A/c and Fixed Deposits (FD) — fully taxable.

### C) Interest on Tax Refund

Taxable in the year of receipt (cash basis).

## Exempt Interest Income

Type	Exemption
Interest on Public Provident Fund (PPF)	Fully exempt
Interest on Non-Resident External (NRE) A/c from a bank in India	Exempt if individual is Non-Resident under FEMA, or permitted by RBI to maintain such A/c
Interest on Post Office Savings Bank A/c	Individual A/c: up to ₹ 3,500 exempt; Joint A/c: up to ₹ 7,000 exempt

## Deductions Available

For interest on securities/deposits/loans → all expenses incurred to earn the income (interest paid on borrowings, collection charges, etc.)
For interest on bank FDs / savings → none specific (general principles apply).
For interest on tax refund → no deduction.

## Related Section 80 Deductions

Section 80TTA: Deduction up to ₹ 10,000 on savings A/c interest (non-senior citizens) — under Chapter VI-A, not IFOS.
Section 80TTB: Senior citizen — ₹ 50,000 on all deposit interest.

Worked example

### Example 1

Example: Mr. Kumar (resident, age 35) earned: Bank FD interest ₹ 80,000; Savings A/c interest ₹ 8,000; PPF interest ₹ 60,000; Post Office Savings interest (individual) ₹ 4,000; NRE interest ₹ 5,000 (he is resident, so taxable). IFOS: FD ₹80,000 + Savings ₹8,000 + Post Office ₹500 (4000−3500 exempt) + NRE ₹5,000 = ₹ 93,500. PPF fully exempt. Further, Section 80TTA may allow ₹ 8,000 (lower of savings interest or ₹ 10,000) as deduction from GTI.

⚠️ Common exam mistakes

Treating PPF interest as taxable (it's fully exempt).
Allowing NRE interest exemption to a Resident taxpayer (only available if individual is NR under FEMA).
Taxing interest on tax refund in the year accrued instead of the year received.
Confusing the Post Office Savings A/c exemption (₹ 3,500 / ₹ 7,000) with 80TTA (₹ 10,000).
Missing that interest on PPF, EPF, etc., is exempt only subject to specified limits.

Bare-Act text Sections 10(15), 56(2)(id), 57 · Income Tax Act, 1961 · click to expand

Section 10(15) exempts specified interest incomes. Section 56(2)(id) brings interest on securities under IFOS where not taxable as PGBP. Section 57 allows deductions for expenses incurred to earn such interest.

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Interest Income - Taxable vs Exempt

Worked example

⚠️ Common exam mistakes