Tax on interest
Interest you earn is generally added to your taxable income, but part of it may be exempt each year. The size of that exemption depends on your age. Interest held inside a tax-free savings account falls outside this system.
The exemption and the tax
Constants as the revenue service prints them, with the day they took effect where the page gives one.
- Interest exempt from tax, under 65
- 23,800ZAR
- a year; interest above it is taxed as part of your income
- SARS: interest and dividends 5
- Interest exempt from tax, aged 65 and over
- 34,500ZAR
- a year; unchanged for the current tax year
- SARS: interest and dividends 5
- Dividends tax
- 20%
- withheld at source on dividends of South African companies paid to individuals
- SARS: interest and dividends 5
Not tax advice. Your own tax depends on your total income.
How the interest exemption works
South African residents receive a yearly interest exemption. The amount is set by law and differs for people under sixty-five and for people aged sixty-five and over. The site prints the current figures alongside this page.
Only interest above the exempt amount is taxed. That excess is added to your other income and taxed at your own marginal rate, so the effective cost depends on your total taxable income for the year.
Interest from a normal bank account, a fixed deposit or a retail savings bond normally falls within this ruleset. The exemption is applied once across your interest income for the year, not separately per account.
Why interest in a tax-free savings account sits outside this
A tax-free savings account is a separate wrapper with its own rules. Interest, dividends and capital gains earned inside it are not taxed in your hands, so the yearly interest exemption does not need to be applied to that interest.
Because of this, money in a tax-free savings account does not use up your interest exemption. Your exemption stays available for interest earned outside the account, such as on a fixed deposit or a retail savings bond.
Dividends paid by shares or funds held outside a tax-free account are treated differently from interest. They are subject to dividends tax, which is withheld before the money reaches you, rather than being added to your taxable income.
A retirement annuity works on yet another basis. Contributions may receive a deduction within limits, and the tax treatment of the underlying interest and growth differs from both a normal account and a tax-free savings account.
A common mistake is assuming the interest exemption applies to each account separately, or that it covers dividends. It applies once to your interest income for the year, and dividends tax is handled separately.
Sources and read dates
Every figure on this page points to one of these. The date on the right is the day we read the source.
- 5Revenue serviceSARS: interest and dividendswww.sars.gov.zainterest exemption and dividends tax