Opening a savings account is a significant first step in building up your financial health. Having the ability to transfer and withdraw funds when necessary while also earning interest on the money saved is essential — not only will this provide some much-needed financial relief, but it can also offer extra security. Whether you open a savings account online or by visiting a branch, it empowers you to park your funds safely and makes you eligible for various additional services and facilities.
Despite many facilities, understanding your savings account interest rates and how they are taxed can be essential for managing your finances correctly. Let’s dive further into this information so you can make the most out of your savings goals.
A Detailed Analysis On How Interest from Savings Accounts Is Taxed
In India, interest earned from a savings account exceeding Rs 10,000 is taxable under the head ‘income from other sources’ based on the individual’s income tax slab. As such, when calculating the interest on a savings account for the purpose of taxation, it is recommended that all previous financial year’s savings account statements be accumulated for review. Now carefully look over the statement to find the interest accrued to your savings accounts listed under the deposits column.
Depending on your bank, these credits may be listed annually, biannually, or quarterly. Record each of the interest credits found and total them. Deduction can be claimed on interest earned up to Rs 10,000. However, if the interest earned exceeds Rs 10,000, it should be declared under the income section while filing taxes.
Savings Account Interest Tax Exemptions – Section 80TTA andSection 80TTB
Certain tax exemptions are available for individuals who earn interest from their savings accounts covered under section 80TTA (introduced in 2013) and section 80TTB (introduced in 2018). Here is an in-depth look at each.
Tax Deduction Under Section 80TTA
As a taxpayer, you can benefit from section 80TTA, which provides you with tax deductions of up to Rs 10,000 per financial year against the interest you earn on your savings account maintained in a bank, post office, or cooperative society. This deduction reduces your tax liability and helps you save more for your future needs. It is important to note that under section 80TTA, this benefit is available to all individuals (below the age of 60 years) and Hindu Undivided Family (HUF). Also, section 80TTA is not applicable to fixed deposits, term deposits, or recurring deposits.
Tax Deduction Under Section 80 TTB
Indian residents aged 60 years and above can benefit from Section 80TTB of the Income Tax Act and claim a deduction of up to Rs. 50,000 on the total savings account interest income earned in one fiscal year. This deduction applies only to fixed deposits, savings accounts at post offices, cooperative banks, commercial banks, and recurring deposit accounts.
To Wrap Up
With the ease of use, safety, liquidity, and interest-earning potential as its key features, a savings account can be a go-to option to park your funds safely. Even though your savings account interest may attract tax if it exceeds a limit, deductions under sections 80TTA and 80TTB help you reduce your tax liability and take advantage of many tax incentives.To better understand how your savings can grow with a savings account, you can use a savings account calculator, which can help you estimate the potential interest earnings on your account based on your balance and interest rate.