Understanding Savings Account Tax Implications

Savings Account is a common financial product. The account allows you to park your earnings, reap attractive interest rates and easily access funds when required. You should open a Savings Account if you wish to grow your savings. You can choose to open an account at any leading bank or financial institution. Pay attention to the interest rates when opening the account.

A higher interest rate translates to higher interest income. Let us understand the connection between Savings Account interest rates and their tax implications.

Tax benefits and interest rates

Savings Account rates are calculated considering your closing balance at the end of the day. A higher deposit attracts a higher rate. Generally, an interest rate of 3.25% is offered on deposits up to Rs. 1 lakh. The interest rate hikes as the deposit amount exceed the given slab. Holding a higher account balance is always recommended to maximise your interest earnings. Besides, maintaining the minimum balance requirement contributes to your Savings Account.

Your contributions lead to an appreciation in your principal deposit, increasing your interest earnings.

How are Savings Account interest rates taxed?

Like every investment instrument, interest rates on Savings Account are taxable. When filling your Income Tax Returns, you should declare interest income from your online Bank Account under ‘income from other sources’. You get taxed as per the Income Tax slab rate you fall under. Note that different set of taxation rules apply to senior citizen holders.

There are a few tax deductions granted by the Indian government on your interest earnings. However, only Indian citizens are eligible to claim those.

How can you claim Savings Account tax deductions?

There are two ways to claim tax benefits online Saving Account opening: Section 80 TTA and Section 80 TTB.

Section 80 TTA

This was introduced during the Union Budget of 2013. The tax policy allows people to claim a tax deduction on their interest income. As per Section 80 TTA, you can claim deductions of Rs. 10,000 on the accumulated interest income from all your Savings Accounts. Individuals belonging to Hindu Undivided Family (HUF) and holding the Savings Account can claim this benefit.

Section 80 TTB

This was introduced during the Union Budget of 2018. The primary aim is to allow pensioners and senior citizens to earn more income by availing of the tax benefit. Here, you can claim a tax deduction of Rs. 50,000 on your interest income in a financial year. The tax benefit applies to all interest-generating investments like Saving Bank Account, Fixed Deposits, and Term Deposits. Anyone above the age of 60 years can claim this benefit.

Note: You can avail the mentioned tax deduction over and above Section 80C tax benefit.