Managing your finances wisely involves not just saving money but also understanding the tax implications associated with your savings. One aspect that often confuses individuals is how the interest earned from their savings account is taxed.
This blog aims to explain savings account interest tax in India, guiding you through the relevant sections and deductions in simple terms.
How is savings account interest taxed?
The interest you earn on your savings bank account is added to your total income from other sources like salary, investments, etc. This combined income then falls under a specific tax bracket, determining the applicable tax rate. This rate varies depending on your income level and the current tax regulations set by the government.
To calculate your tax liability, you will need to gather all your savings account statements from the previous financial year (April 1st to March 31st). Look for the “interest credited” section on each statement, which might be shown as annual, biannual, or quarterly additions.
Sections 80TTA and 80TTB
Section 80TTA: Deduction for individuals and HUF below 60 years
Section 80TTA of the Income Tax Act is aptly titled ‘Deduction in respect of interest on deposits in savings account’. This deduction is applicable to individuals and Hindu Undivided Families (HUF) who are below 60 years of age.
It’s crucial to note that Section 80TTA applies only to interest earned on savings accounts and not on term deposits, fixed deposits, or recurring deposits. The deduction allows you to claim benefits on savings account deposits held in a post office, bank, or cooperative society.
For those eligible, Section 80TTA provides a deduction of up to ₹10,000 per annum on interest earned from these sources. However, any interest earned beyond this threshold is subject to taxation.
Section 80TTB: Special deduction for senior citizens
For senior citizens, Section 80TTB provides a special deduction of up to Rs 50,000 per annum on interest earned not only from savings accounts but also from fixed deposits. This deduction is applicable to all types of deposits, including savings accounts, fixed deposits, and recurring deposit accounts.
It’s essential to note that if the interest income is attributed to an Associate of Persons (AOP), a firm, or a body of individuals (BOI), individuals other than senior citizens are not eligible for Section 80TTB deductions.
Important points to remember:
- If your total interest income exceeds the deduction limits (Rs 10,000 for Section 80TTA, Rs 50,000 for Section 80TTB), the remaining amount will be taxed as per your income slab.
- Non-resident Indians (NRIs) are not eligible for the deductions under Section 80TTB.
- For NRIs, tax is deducted at source (TDS) at 30% on interest earned from Non-resident Ordinary (NRO) accounts. However, no tax applies to Non-resident External (NRE) accounts.
Staying informed and compliant
Remember, it’s crucial to accurately report your savings account interest income while filing your tax returns. By understanding the applicable deductions and exemptions, you can optimise your tax liability and make informed financial decisions. If you have further questions or require personalised guidance, seek advice from a qualified tax professional.