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Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
Regularly review your tax on savings account interest and tax implications to ensure optimal financial management.
Saving money in a bank account is a great way to keep your money safe while earning a little extra through interest. But did you know that the interest you earn from your savings account does not come tax-free? Many people think that because there is no Tax Deduction at Source (TDS), they do not need to worry about it. But guess what? You still have to pay tax on savings account interest if it crosses a certain limit.
The good news is that you can get a tax exemption on bank interest up to ₹10,000 in a year under Section 80TTA of the Income Tax Act. This applies to both individuals and Hindu Undivided Families (HUFs). But the catch is that this ₹10,000 limit is not per account. It is for the total interest income from all your savings accounts combined.
So, if your interest on savings account deduction stays below ₹10,000, you do not need to pay tax. If it goes over that amount, you will need to report it as taxable interest under “Income from Other Sources.” And no, you cannot avoid taxes by opening multiple savings accounts with low interest since saving account tax limits apply to all accounts together!
Every savings account in a bank earns interest, and this interest is calculated daily on the balance in your account. This earned interest gets credited to your account on a periodic basis (such as monthly or quarterly), allowing you to earn more money passively.
However, while earning interest is great, it is important to remember that this interest is subject to taxation. The exact amount of tax you pay depends on how much interest you earn, how it fits into your total annual income, and the interest on saving account deduction.
Suppose you earn an interest of ₹35,000 from your savings account and are eligible for the deduction of ₹10,000 under Section 800TTA. Thus, you will pay tax on savings account interest of ₹25,000 (₹35,000-₹10,000). This interest income will be included under the head “Income from Other Sources” and will be taxed as per the relevant tax slabs.
The interest earned from a savings account for a resident in India does not attract TDS as per the provisions provided under section 194A of the Income Tax Act 1961. Similarly, no tax is deducted on the interest earned by Non-Resident Indians (NRIs) from NRE (Non-Resident External) accounts in India. However, TDS is charged at 30% for the NRO accounts.
Section 80TTA allows a deduction of up to ₹10,000 on interest income through the interest received on the savings account with a bank, cooperative society, or post office for a particular financial year. This interest income exemption is allowed for residents and HUFs aged below 60 years. Interest income earned on the above-fixed income instruments is subject to income tax as per the prevailing tax slab if the interest amount exceeds ₹10,000.
Section 80TTB enables any senior citizen (who has attained the age of 60 years or more) to opt for a deduction of up to ₹50,000 for every financial year where interest is earned on savings accounts and/or fixed deposits. This higher savings bank interest exemption limit aims to give social security and extra tax benefits for the aged.
| Criteria |
Section 80TTA |
Section 80TTB |
| Eligible Assesse |
Individuals (below 60 years of age) and HUFs |
Senior citizens (aged 60 years and above) who are residing in India |
| Type of Income Covered |
Interest earned from savings accounts |
Interest earned from savings accounts, fixed deposits, and recurring deposits |
| Deduction |
Maximum limit of ₹10,000 |
Maximum limit of ₹50,000 |
| Exceptions |
Not applied in case of term deposits, fixed deposits or recurring deposits |
Non-resident Indians (NRIs), individuals below 60 years of age, and HUFs cannot claim this deduction
If interest income is owned by an Associate of Persons (AOP), firm or Body of Individuals (BOI), the deduction is not available for the partners or members |
Interest on savings accounts is simple interest, which is calculated on the daily balance and is compounded periodically as per RBI norms prevalent at the time of opening of account. Interest income earned on the same is subjected to tax.
However, offset can be claimed on the tax on savings account interest under section 80TTA and section 80TTB to reduce the financial burden. These sections permit deductions up to ₹10,000 in the case of the individual below 60 years of age and ₹50,000 in the case of the senior citizen. Understanding the tax on savings account interest can help you make good financial decisions. You can keep a check on your savings account interest income, assess the amount of deduction you are eligible for based on your income and residential status, and ensure accuracy while computing the tax liability.
1
Yes, you will have to pay tax on savings account interest under the head “Income from Other Sources,” according to the relevant tax slab.
2
You can avoid tax on savings account interest by claiming a deduction of up to ₹10,000 per year under Section 80TTA of the Income Tax Act. However, if you fall in the senior citizen bracket, you can claim a deduction of up to ₹50,000 under Section 80TTB.
3
TDS is not applicable if the interest earned from the savings account is from resident Indians and HUFs. In the case of NRIs, the TDS at 30% will apply to NRO accounts.
4
Section 80TTA allows a deduction of up to ₹10,000 for each financial year on interest accruing on deposits held in the savings accounts with banks, cooperative societies, post offices, or any other companies admissible under the Companies Act 2013.
5
Yes, the interest of multiple savings accounts can be claimed as a deduction, but as per section 80TTA, the total amount that can be claimed is ₹10000.
6
The deduction under section 80TTA is allowable for a maximum of ₹10,000 in each financial year.
7
Any interest income up to ₹10,000 obtained from a savings account under Section 80TTA is exempt from taxation. Under Section 80TTB, the limit for senior citizens is up to ₹50,000. You thus have to pay tax on savings account interest that exceeds the relevant deduction limits (₹10,000 or ₹50,000).
8
There is no specific limit on the amount of money you can keep in a savings account without tax. However, interest earned up to ₹10,000 is tax-free under Section 80TTA and up to ₹50,000 for senior citizens under Section 80TTB.
9
The deductions related to tax on savings account interest under Section 80TTA are available to individuals and HUFs who are under the age of 60. Any Individual who is above the age of 60 becomes eligible for deductions under Section 80TTB.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
