- Interest earned on bank savings account is exempt from tax for an amount up to Rs 10,000 during a financial year
- Rs 10000 limit includes the sum of all interests earned from all savings bank account held by an individual or HUF
- If the cumulative sum of interests earned from savings bank account exceeds Rs 10000, it must be reported as ‘income from other sources’ in tax form
First things first — interest earned from bank savings account is taxable, even though there is no tax deduction at source (TDS). Do not fall prey to the misconception that interest thus earned from the savings bank account is tax free, because the interest earned on money kept in your savings account is taxable. You can avail deduction of up to Rs 10,000 on the total savings account interest income earned. This deduction can be availed under Section 80TTA of the Income Tax Act and is available to an Individual and HUF.
If your total interest income is below Rs 10,000 then you do not have to pay tax on it. However, this does not mean that you can avail of tax free interest income by having multiple savings accounts where the interest earned is below this threshold. The deduction available is not 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.
Make a start by accumulating all your savings bank account statements for the previous financial year. Dig deep into the statement to locate the interest accrued to your savings account, which can be seen in the deposit column. Depending on your bank, your statement could show interest as an annual, biannual or quarterly credit(s).
Don't miss out on the interest you earn from savings bank account when filing tax returns”
In case of biannual interest payout, which is the most common manner in which interest earned is paid out — the interest earned may actually be for the previous year. In such cases, seek the help of the bank staff to understand how to calculate the interest earned in the relevant financial year. Now, note down all the interest credits mentioned in your bank accounts and add them up. In case the net interest earned is more than Rs 10,000 a deduction of Rs 10,000 will be applicable on the total. Any sum above Rs 10,000 should be mentioned in the income section during tax calculations.