Is Savings Account Interest Taxable?

Understanding taxes on savings account interest.
Tax on Saving Account
3 min
14-April-2024

Savings accounts are the cornerstone of any financial system. While several other savings and investment instruments are available, like fixed deposits and provident funds, regular savings accounts have retained their popularity over the years. From the customer's perspective, savings accounts help you accumulate interest income over time and secure your deposits with a reliable financial institution. The money stored in savings accounts is highly liquid and can cater to your various needs.

Savings accounts play a crucial role in the financial system. They provide the funds that banks and institutions use to give loans. These loans are essential for individuals buying homes, businesses expanding, and investors growing their wealth.

How is interest earned in savings accounts calculated?

As per the guidelines laid down by the RBI (Reserve Bank of India), interest accrued on savings accounts is calculated daily. Each day, the amount of interest accrued is calculated based on the corresponding closing balance of the account. The interest income is calculated and accrued similarly every day, but the payout is made on a specific basis. This could be annually, semi-annually, quarterly, or even monthly.

The formula for calculating the interest on savings accounts is quite simple. It is:

Interest per month=Daily Balance * Rate of interest * Number of days/days in a year

Also read: Fixed deposit interest rates

Tax on savings account interest

Any interest earned on a savings account is considered taxable income. According to the Income Tax Act of 1961, you must report this income in your tax returns, under the category of "Income from Other Sources." While banks do not deduct TDS (Tax Deducted at Source) from savings account interest, it is your responsibility to declare and pay tax on it.

Also read: EPF interest rate

How much is the tax on savings account interest

Under Indian income tax laws, the interest earned from your savings accounts is taxable based on your income bracket. Section 80TTA allows for a deduction of up to Rs. 10,000 annually for individuals or Hindu Undivided Families (HUFs). This means that if your savings interest is less than Rs. 10,000, you might not need to pay any tax on it.

It is important to know that you cannot get around taxes by spreading your savings across multiple bank accounts. The Rs. 10,000 tax deduction applies to the total interest you earn from all your savings accounts combined. For example, if you have multiple accounts and earn Rs. 15,000 in interest throughout the year, you will still need to pay taxes on Rs. 5,000.

Also read: Post office FD interest rate

Conclusion

Paying taxes on savings account interest is a legal requirement. It is important to understand how this works to manage your finances effectively. Your savings account interest is considered taxable income, even though your bank does not automatically deduct taxes. Luckily, Section 80TTA helps you save – you can deduct up to Rs. 10,000 of interest from your total taxable income. However, any interest earned above this amount will be taxed according to your income tax bracket. Knowing these rules helps you to make smart financial choices and stay in compliance with the law.

Calculate your expected investment returns with the help of our investment calculators

Investment Calculator

Systematic Investment Plan Calculator

Fixed Deposit calculator

SDP calculator

Gratuity Calculator

EPF Calculator

Lumpsum Calculator

Step Up SIP Calculator

Sukanya Samriddhi Yojana Calculator

Public Provident Fund Calculator

RD Calculator

Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.