Savings account tax limit: All you need to know
A Savings Account is the most basic type of account that you can open with a commercial bank. It enables you to keep your money safe with the bank, earn interest on it, and withdraw the funds as and when you need it. A Savings Account is vital because it encourages you to save your money. You also get several useful facilities with your Savings Account. For instance, you can conveniently access your account at any time, withdraw cash at ATM, use international debit cards for purchases and bill payments and transfer funds easily via online banking, easy fund transfers. And while the account gives you many facilities, you should also be aware of the tax implications for savings account. Let us find out more about it.
Interest earned on Savings Account deposits is tax-free up to INR 10,000 per section 80TTA of the Income Tax Act. Thus, if your annual interest from savings account deposits is less than INR 10,000, your account becomes a tax-free account. Additionally, senior citizens and pensioners can avail of deductions up to INR 50,000 per annum on their interest income from Savings Account deposits under Section 80TTB.
The government introduced Section 80TTA in the Finance Bill of 2013, making it applicable from the financial year 2012-13 onwards. This section enables a citizen to claim deduction on their interest income and minimise their tax outgo. To be eligible to claim the benefits under this section, you have to be a residing citizen of India. Under Section 80TTA, you do not qualify for deductions on interest accrued on fixed deposits, recurring deposits or, any other deposits to qualify for the deductions. Let us look at the terms and conditions applicable to the tax on Savings Accounts.
The government provides certain benefits to Indian pensioners and senior citizens so that they can have more money in hand. Section 80TTB is one such move that allows deductions on the interest on the Savings Account. This section was introduced for the first time in the budget session of 2018. The salient features of this section are.
Whenever interest on the Savings Account or other deposits goes up, the uptrend in the interest is applicable on the lending with immediate effects. As per the new Reserve Bank of India (RBI) mandate, the interest on the Savings Account is calculated on a daily basis, and is based on your closing amount. The accumulated interest is credited to the account on a quarterly or half-yearly basis depending upon the bank and account type.
Generally, the formula followed to calculate interest on Savings Account is as below:
Monthly interest = Daily balance *(number of days in the month)* interest rate/ (days in the year)
Having examined the Savings Account tax limit and interest calculation, let us investigate its advantages. A Savings Account can offer you several benefits, which include the following:
The interest income on savings account deposits is taxable under the subhead 'Income from Other Sources'. It is applicable per your respective income tax slab rates. However, as mentioned earlier, the government of India grants certain deductions based on your age.
The Savings Account tax limit is different for those below the age of 60 and senior citizens (above the age of 60) and applies only to the interest income. However, tax deduction at source (TDS) is not applicable for Savings Account deposits as per Section 194A of the IT Act(1). Ensure you check the applicable tax rates before you file your returns.
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The exceptional facilities that come with a Savings Account make it a go-to option to park funds. The interest earned on a Savings Account attracts tax, but under sections 80TTA and 80TTB of the IT Act, deductions are also applicable. Before you open a Savings Account, it is advisable to go through the tax implications.
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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.