Income tax rule: How is interest from savings account taxed?
- The interest earned above a certain limit attracts tax
- Some savings accounts will require a minimum balance, while others will have no minimum balance requirement
Savings accounts are one of the best ways for people to put aside their extra money. A savings account not only your money safe but pays interest too. Everyone has a savings account, some even have multiple savings accounts. You may feel that you don’t have enough money to open a savings account. Almost every bank like the State Bank of India (SBI), ICICI Bank, HDFC Bank, Axis Bank, Kotak Bank and others offer the facility of savings current account.
How much interest does your Savings bank account earn for you? The interest earned above a certain limit attracts tax. Be it from savings and investments like a savings account, post office schemes, fixed deposits, recurring deposits. As per the income tax slab rates applicable, interest on a savings account is taxable to the investor. However, under section 80TTA deduction is also allowed on interest from a savings account. This comes with a maximum of ₹10,000 per year.
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"A savings account is not taxed. Interest income from a savings account is taxable as income from other sources. Individuals up to the age of 60 years can claim deduction on interest income under section 80TTA of a maximum of ₹10,000 (or actual interest income whichever is lower)," Cleartax Founder and CEO Archit Gupta explained.
He further added, "those who are 60 years old or more can claim deduction on interest income under section 80TTB of maximum ₹50,000 ( or actual interest income whichever is lower)."
How is interest from savings account taxed?
The interest earned from your savings account is added to your income from all the other sources and then your total income is taxed according to the relevant tax bracket.
Some savings accounts will require a minimum balance in order to avoid monthly fees, while others will have no minimum balance requirement.
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Section 80 TTA
- The deduction is allowed only to individuals and HUFs assesses and not for companies or firms.
- Maximum ₹10,000 deduction allowed for interest earned from all saving accounts held in post offices, banks or co-operative banks.
- Interest earned beyond ₹10,000 from any of these sources shall be taxable.
Section 80 TTB
- This section grants a deduction of up to ₹50,000 per annum to interest on savings accounts and on fixed deposits to senior citizens.
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