You will now have to pay tax on interest earned beyond Rs 3,500 on a postal savings bank account. In a recent decision, the Central Board of Direct Taxes , the apex direct taxes body, withdrew the blanket exemption enjoyed hitherto by the scheme.
The exemption will be available only on interest earned up to Rs 3,500 in case of individual accounts and Rs 7,000 in case of joint accounts from the current fiscal year itself. Experts say some of the concessions granted earlier had to be reviewed to see if they were in line with the current economic reality or had outlived their utility.
The exemption on the postal savings account was introduced in 1989.
With post office savings account coming under tax net, interest earned beyond the exemption limit will have to be added to a taxpayer’s total income and tax paid accordingly. The current interest rates for Post Office savings deposits is 3.5% per annum.
The maximum investment limit is Rs 1 lakh for an individual and Rs 2 lakhs in case of joint accounts.
At present, interest paid by banks in savings account is taxable and only postal savings account offered a tax-free interest income.