Explained: How is interest from savings account taxed?
2 min read . Updated: 24 Jan 2023, 11:36 AM IST
Premium- if your interest from saving account sums more than ₹10,000 during a financial year, then you are viable for tax.
Savings accounts are accounts which is held by every individual. The more the amount of savings, more the interest a person gets. Individual often have multiple saving accounts, so the interest achieved on the saved money is much higher.
However, if your interest from saving account sums more than ₹10,000 during a financial year, then you are viable for tax.
Interest from savings account is exempted from tax for an amount up to ₹10,000 during a financial year. This deduction can be availed under Section 80TTA of the Income Tax Act and is available to an Individual and HUF.
It is important to note that the deduction available is not as per bank account but on the total interest earned on all your bank accounts.
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. This will vary each financial year, depending on the money that was residing in your bank account in that period.
Some savings accounts will require a minimum balance in order to avoid monthly fees, while others will have no minimum balance requirement.
Section 80 TTA
Section 80TTA is titled as ‘Deduction in respect of interest on deposits in savings account’ in the Income Tax Act, as per HDFC Life.
This deduction is applicable to individuals and HUF who are less than 60 years of age.
Section 80TTA can be applied only in case of savings accounts and not on term deposits, fixed deposits or recurring deposits.
Section 80TTA of the Income Tax Act allows you to claim deductions on savings accounts deposits that are held in a post office, bank, or cooperative society.
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.
This can be applied on all kinds of deposits like a savings bank account, fixed deposit account, recurring deposit account, etc.
If the interest income from a savings account is owned specifically by an Associate of Persons (AOP), a firm or a body of individuals (BOI), Section 80TTB deduction will not be available for the partner of such a firm or any member of AOP or BOI, as per HDFC Life.
Individuals and Hindu Undivided Families apart from senior citizens cannot avail of the tax deductions under Section 80TTB.
Non-resident Indians (NRIs) are not eligible for the 80TTB deductions.