A Savings Bank Account is an account held at a bank that pays interest on the money in the bank account. These accounts help customers set aside a portion of their funds (money) while earning a return on them.
Interest from savings bank account is tax deductible to a certain extent. But they are shown under income from other sources.
Section 80TTA, deals with tax deduction on interest earned on deposits in savings bank account.
You can claim exemption up to Rs. 10,000 received as interest on your savings account deposits. Interest over Rs. 10,000 will be taxed as per the income tax slab rates.
Earlier this interest was taxable as per the tax rate. But after the amendments made in the Income Tax Act regarding this on 1st April 2012, Rs. 10,000 are deductible under Section 80TTA.
This deduction is only available to an Individual and HUF.
If your savings accounts are earning interest amounts higher than Rs. 10,000 in a financial year, you will be able to claim deduction only up to Rs. 10,000. The remaining interest amount you received will be added to your total income as income from other sources and taxed as per your income tax slab rates.
Eligible Accounts for this deduction:-
- Savings Bank Account
- Cooperative Bank Account
- Post Office Savings Scheme
No TDS is deducted on interests from savings bank account irrespective of the interest amount earned.
You can claim exemption on any number of savings accounts as long as the total amount to be exempted on is less than Rs. 10,000. If it is more than Rs. 10,000 the amount above Rs. 10,000 will taxed as per income tax slab rates.
For example, if Mr. Sachin has 3 savings accounts and he earns an interest of Rs 5,000, Rs 8,000 and Rs 15,000 on each of his accounts respectively in a financial year, his total income from interests is Rs 28,000. It should not be assumed that the Mr. Sachin will have to pay tax only on the interest earned from the third savings account because it is more than Rs 10,000. He will have to pay income tax on Rs 18,000 [(5,000 + 8,000 + 15,000) – 10,000)] depending on the tax slab he falls into.