If so why is it ? What if for a person if is a critical source of income and livelihood. What makes this interest haram, especially if the person is not taking the interest by force?please can you provide me with any hadiths and ayats regarding this .
This depends who you ask. Obviously, riba is haram, but what is the definition of 'riba'? Does it apply to bank interest?
While Muslims agree that riba is prohibited, there is disagreement over what it is... there is also disagreement over whether it is a major sin and against sharia (Islamic law), or simply discouraged (makruh). -- Wikipedia
There's also some technical details: (a) is the interest from a Muslim or non-Muslim, and (b) whether its haram to deal with such banks provided the riba is disposed of. It's also worth noting that there are Islamic banks, and bank interest is mostly prohibited in Pakistan (see Prohibition of riba, M. A. Khan for a discussion).
Here's one instance of riba being strongly condemned in the Qur'an (other ayah and ahadith are listed on the Wikipedia page):
O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers. And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged. -- Qur'an 2:278-279
There's learned scholars declaring bank interest as haram, and others declaring it halal. I'll give a sampling of both. My impression is that there's more fatawa declaring bank interest haram.
Who says bank interest is halal?
Question: If I know that the bank will give me interest even without stipulating the conditions, is it permissible for me to deposit in a savings account that takes the form of a term-deposit?
Answer: Yes, it is permissible, as long as you do not stipulate the conditions of interest.
-- Grand Ayatullah al-Sayyid Ali al-Hussani al-Sistani (undated; Iraq; Shia Islam), Question & Answer, Interest
I will give you a final and decisive ruling (Fatwa)... So long as banks invest the money in permissible venues (Halal), then the transaction is permissible (Halal)... The issue is an investment from money. Otherwise, it is forbidden (Haram)... there is no such thing as an Islamic or non-Islamic bank. So let us stop this controversy about bank interest.
-- then Grand Mufti, Shaykh Nasr Farid Wasil (Egypt; Sunni Islam)
(sourced from: M. A. El-Gamal, Involving Islamic Banks in Central Bank Open Market Operations, Thunderbird International Business Review (2007)) However, the legitimacy of this fatwa was contested by M. A. El-Gamal, A Basic Guide to Contemporary Islamic Banking and Finance (2000) [pdf], referring to a list of fatwas by Dr. Muhammad Ali Al-Salus (1998) which "debunks the foundations of those recent permitting fatwas", writing "...the vast majority of jurists, today and in the past, disagree with those expressed opinions."
Q1901: Is it permissible to receive the interest paid on money deposited with the banks of non-Islamic countries, irrespective of whether the owners were among the People of the Book or polytheist? Is it permissible to have the right of disposal over such money, regardless of whether or not the depositor made it conditional that he be paid the interest?
A: In the given case, it is permissible to take interest, even if it was with the condition of taking such interest.
Q1902: If some of the shareholders of the bank are Muslim, is it permissible to receive the interest?
A: There is no objection to receiving interest from the shares of non-Muslims. It is not permissible to receive interest from the share of a Muslim. That is, where depositing the money with the bank is with the condition of getting interest and ribā or for the purpose of receiving it.
Q1903: What is the ruling in the matter of taking interest on the money deposited with the banks in Islamic states?
A: It is not permissible if the money was deposited under the title of loan and that the payment of interest was made conditional or with that anticipation/intention.
Who says bank interest is haram?
It is forbidden to put one's money in [banks] regardless of interest or lack of interest accrued. -- Shaykh Ibn Baz (1992; Saudi Arabia; Hanbali, Sunni Islam)
The above goes even further and forbids even putting one's money in banks. In response to this, we have:
...if an amount of money is put in a bank, in the understanding that it gains a specified quantity of interest, this is also a form of riba [and thus illegal]. The [overwhelming] evidence against this practice includes the previous texts and the consensus of scholars. However, the practice of keeping one’s money in banks for the purposes of safety, and not for taking interest, is permitted. -- Dr. Anas Abu Shadi, in The Response
(The Response is a book aimed at identifying and responding to hardline fatawa. As such, it's authors tend to have more moderate perspectives. Despite this, they unequivocally state that bank interest is riba.)
Interest on all types of loans is forbidden Riba. There is no difference in this regard between so-called consumption and production loans. Moreover, Riba is forbidden (haram) in small as well as large quantities, whether it is effected through time deposits, demand (or checking) deposits, or any interest-bearing loan contract. All such dealings are among the forbidden Riba -- Research Council of al-Azhar (1965; Egypt; Sunni Islam) sourced form El-Gamal (2007).
It is not permitted for the Muslim to leave the interest monies with the bank, since that would benefit the banks, especially if they are non-Muslim and foreign banks that may use such funds against Islam and Muslims directly or indirectly. This is being said with the full understanding that continuing dealings with Riba-based banks, with or without interest, is not permitted. -- The Islamic Fiqh Council in Makkah (1985; Saudi Arabia)
There are many references which make it clear that receiving interest in any form is prohibited in Islam. Not using force to earn interest or relying on interest as a source of income do not make interest permissible.
Surah Al-baqarah verse no.275-276:
Those who devour usury will not stand except as stands one whom the Satan by his touch has driven to madness. That is because they say, "trade is like usury", but Allah has permitted trade and has forbidden usury
Allah will deprive usury of all blessing, and will give increase for deeds of charity, for he does not love any ungrateful sinner.
From a logical stand-point (although one must exercise caution when applying human logic to religion), I believe earning interest greatly increases the odds of making one a non-contributing partner in the society. If one receives a fixed sum of money just because one already owns some money; it becomes likely that one no longer remains concerned about how the payer earned that sum. However, if one invests that money in some non-interest based opportunity (profit-loss sharing), it is more likely that one will remain engaged in that investment to become profitable and in this manner, will contribute towards the society.
Hence, if a person owns a sum of money, they must invest it in a logically sound manner and work for the investment to become profitable to earn a living. Along with that, one must have faith that Allah is the Provider. And Allah knows the best.