What is the Income Tax on Savings Account Interest?

Almost every individual holds a savings account, and the more the savings, the more interest they get. Sometimes, one person holds more than one account to get more interest as the amount saved will be much higher.

However, if you are found to earn an interest of more than ₹10,000 per year, you are entitled to pay tax. Let us see what are the different instances where you have to pay taxes as well as instances where you can claim tax deductions.

Having a savings account instils a habit of saving and gives the account holder a sense of security. Opening a savings account is the first step toward a secure financial future. It can save you in tough times such as that of a pandemic where people lost their jobs as well as faced huge salary reductions.

So, while you realise the importance of savings accounts, discover the different types of savings accounts that will help you comprehend this topic in a better manner.

There are various types of savings accounts based on the account holder and his financial status and utility. Let us go through them in the next part:

• Regular Savings Account: This is generally for people who focus on short-term savings. These do not offer good interest rates and are open to making quick withdrawals.
• Corporate Salary Account: This account is basically owned by corporate employees and can be customised based on the business relationship that the bank has with the institution.
• Children Savings Account: Children between the age of 0 to 18 can open this account and can avail of Rupay debit card, ATM, and mobile banking.
• Women Savings Account: These accounts come with hefty benefits and facilities specially designed for women, such as flexible fixed deposit facilities.

Interest on a savings bank account is taxable at your slab rate. Let us see some of the cases and understand how the income tax department works:

• Under section 80TTA, if the interest amount rises up to ₹10,000, it gets exempted.
• The savings account limit without tax is ₹50,000 for senior citizens under section 80 TTB. The same applies to interest on fixed deposits.
• Coming on to the NRIs, the tax is deducted at a rate of 30% on interest on Non-Resident ordinary accounts.
• Lastly, for Non-Resident External accounts, no tax is calculated on interest.
• As per section 80TTA, an interest that is earned beyond ₹10,000 from banks, post offices, or cooperative banks shall be taxable.

So, here are some strategies that you can implement to minimise your income tax on savings account interest:

• Invest in the Products Under Section 80C: The products that are mentioned below are expected to reduce your tax by ₹15 lakhs.
  • PPF ( Public Provident Fund)
  • Tax Savings FDs
  • ELSS ( Equity Linked Savings Scheme)
  • NSC ( National Saving Certificate)
  • Sukanya Samriddhi Yojana
• Invest in Health Insurance: Health Insurance gives you a chance to claim a deduction in tax up to ₹25,000 under section 80D. On top of that, if the policyholder is a senior citizen, the deduction amount goes up to ₹50,000.
• Claim Deduction on House Rent Allowance: If you are entitled to pay the house rent allowance from your salary, you have the right to claim tax deductions on the allowance amount.
• Contribute to Charity: If you donate to charities that the government verifies, you are entitled to claim tax deductions under section 80G. However, if you are donating to some scientific research or rural development, the claim for tax deduction falls under 80GGA.

So, if you fall into the category of people who have to pay a hefty sum of money as tax, we hope that the above-mentioned strategies will help you. In this post, we have tried to cover some of the important things one should know when paying income tax on savings bank interest.