Interest earned on your savings account doesn't just go straight into your pocket. Like other sources of income, you may owe taxes depending on your earnings and circumstances. Here's what you need to know about taxes and your savings account interest in India.

Reporting interest income on your tax return

Interest earned on your savings account must be declared under "Income from Other Sources" on your annual tax return. The good news is you won't face immediate deductions at the source—banks generally do not deduct TDS on savings account interest. However, this means you are responsible for calculating and reporting this income accurately.

Maximising your deductions: Sections 80TTA and 80TTB

The Income Tax Act provides valuable deductions to lessen your tax burden on savings account interest rate:
Section 80TTA: Individuals and Hindu Undivided Families (HUFs) can claim a deduction of up to Rs. 10,000 on interest earned from savings accounts (banks, cooperatives, and post offices). This means that if your total savings account interest is, say, Rs. 15,000, you only need to pay tax on Rs. 5,000.

Section 80TTB: Designed for senior citizens (those 60 years and older), this section offers an even more generous deduction of up to Rs. 50,000. This covers interest earned not only from savings accounts but also from fixed deposits.

Example scenario

You earned Rs. 25,000 in interest income from your savings bank accounts during the financial year. Since you fall under Section 80TTA, you can deduct Rs. 10,000, making your taxable interest Rs. 15,000. This amount would then be added to your other income sources and taxed according to your income tax slab rate.

Factors to consider

Calculating your taxable interest: Carefully sum up all interest earned from various savings accounts. For amounts exceeding Rs. 10,000, remember to apply the appropriate deduction before reporting your taxable interest.

Low savings account rates: Savings account interest rates are typically modest. Factoring in inflation and taxation, the real returns on your savings might be even lower. Consider exploring other investment options with potentially higher returns after consulting a financial advisor.

Interest payout schedules: If your bank pays interest biannually, be sure to calculate the interest earned specifically for the relevant financial year. Your bank can help you with these figures.

Proactive tax planning

Staying on top of the tax implications of your savings can make filing your returns smoother. Always ensure accurate reporting of your savings account interest. To further lessen your tax burden, seek guidance from a financial advisor to identify other saving and investment options eligible for tax benefits.