Saving money is second nature for most of us. But what many don’t realise is that the interest earned on savings accounts—though modest—is fully taxable. Whether you're setting aside funds for emergencies or parking surplus salary, the returns you earn can quietly increase your tax liability if you're not paying attention.
Luckily, the Income Tax Act provides several legal ways to minimise or even eliminate this tax burden through smart use of deductions and efficient financial planning.
And with the right financial tools—like life insurance savings plans—you can secure both growth and protection, tax-efficiently.
How is interest from a savings account taxed?
The interest earned from your savings bank account falls under the category of ‘Income from Other Sources’ as per the Income Tax Act, 1961. It is added to your total income and taxed according to your applicable income slab.
However, there’s good news.
- Section 80TTA allows a deduction of up to Rs. 10,000 per year on savings interest for individuals below 60 years.
- For senior citizens, Section 80TTB increases this limit to Rs. 50,000, and covers not just savings interest but also Fixed Deposits and Recurring Deposits.
If your annual interest exceeds these limits, the excess is taxed as per your slab. Also, if your total annual interest (from FDs + savings) crosses Rs. 50,000 (Rs. 1,00,000 for seniors), banks may start deducting TDS (Tax Deducted at Source).
Want a more tax-efficient way to grow your money?
Consider life insurance savings plans, which offer maturity benefits, periodic payouts, and tax exemptions under Sections 80C and 10(10D). Explore plans and get quote!
