Do you know your interest on savings account is taxable?
Savings account has been the most traditional form of investment in banking and other form of financial system.
Do you know that interest income you derive from your savings account is actually taxable? If not, we tell you about Section 80TTA in the IT Act that will guide you how to claim interest income on your savings account.
Savings account is the most traditional form of investment in banking and other form of financial system, as it provides guaranteed return and security.
Income arising from other sources which also involves savings account interest income are taxable as per income tax slab rates applicable to the investors.
Since the government has always motivated citizen in making small savings, basic savings account also provide tax benefits.
For claiming those tax benefits, Section 80TTA plays a key role.
Under IT Act, Section 80TTA is titled as ‘Deduction in respect of interest on deposits in savings account’.
According to BankBazaar, here’s a list of salient features of this section.
- You can claim exemption on up to Rs 10,000 received as interest on your savings account deposits.
- The savings account can be held in any of the following financial institution:
- Cooperative society
- Post office
- You can claim exemption on any number of savings accounts as long as the total amount you are seeking exemption on is less than Rs 10,000.
It may be noted that Section 80TTA can be applied only in case of savings accounts and not on term deposits, fixed deposits or recurring deposits.
How to claim deduction under Section 80TTA.
Firstly, a taxpayer will have to add the total interest income under the head ‘income from other sources’ in your return.
You will need your bank statement of all your savings account in whichever bank they are held in, for filing the above information.
Once you add your total interest income in the header ‘Income from other sources’, then the deduction will be shown under Section 80TTA of IT Act.
The Reserve Bank of India (RBI) has allowed banks to fix higher interest rates if they wish to, as earlier the central bank had set the savings account interest rate at 4%.
Currently, many banks and other financial institution provide savings account interest rate in the range of 4% to 6% to the customers.
For calculating interest rate, banks look into the daily balance and not on the minimum balance. This means that you have high possibility to earn higher interest amount per quarter than earlier.
Previously, banks used to only look into minimum balance in the quarter for deriving the interest rate, however, this method has changed providing better flexibility to customers.
You must make sure to check your bank statement every month, as it will help you keep a tab on the interest rate and income arising from it in the savings account.
Bank Bazaar mentions that if your savings accounts are generating interest amounts higher than Rs 10,000 in a financial year, you will be able to claim deduction only up to Rs 10,000.
Remaining interest amount you received will be added to your total income and income tax charged on it, the report added.