Taxability of Savings Bank Interest
(Section 80TTA of Income Tax Act)
Interest earned on Savings Bank Account is taxable as Income from other Sources. However a deduction of max ₹ 10000, from total savings bank interest is admissible under Section 80TTA of Income Tax Act.
To put it differently we may say that any interest income from Savings Bank Account of more than ₹10000 is taxable. Upto ₹ 10000 savings bank interest can be claimed as deduction under section 80TTA. Only interest amount exceeding ₹ 10000 will be chargeable to tax.
Section 80TTA applies only on Savings Bank interest
It is important to note that only savings bank interest is eligible for deduction u/s 80TTA, FD interest and RD interest are taxable as income from other sources as per normal tax rates applicable to a person.
Senior citizens & Super Senior Citizens are eligible for a total interest deduction of ₹ 50000 u/s 80TTB. Hence the deduction on savings bank interest of ₹10000 is not applicable to them instead they are entitled for a composite deduction of ₹ 50000 for their saving as well as other deposits interest incomes.
Read in detail about provisions of Section 80TTB
Lets take a hypothetical case having Savings Bank Interest ₹ 8400, FD interest ₹15000 & interest on Recurring Deposit ₹15000. Here Total Interest income comes to ₹ 38,400 to be shown in Income tax return as income from other sources, against this interest income deduction u/s 800TTA will be available of ₹ 8;400, as savings bank interest is ₹ 8,400. To claim the deduction of ₹ 8,400 it should be claimed against the column for 80TTA deduction.
In this same example if the person is a senior citizen, the total interest income of ₹ 38,400 will be eligible as deduction u/s 80TTB.
Interest from Multiple Option Deposit Plans commonly known as MODs:
Interest on MODs shall not be confused as interest from savings bank account. Interest earned on MODs offered by banks is actually interest on Fixed Deposits, hence not can not be claimed as deduction u/s 80TTA.
Applicability of TDS on Saving's Bank Interest:
There is no deduction of tax at source(TDS) on interest earned on savings bank account. However, Interest on MOD / other flexible deposit Account Schemes are subject to TDS.
So keeping money in savings account does not cause any extra tax burden as long as interest does not exceed ₹10000. Further the cumbersome exercise of finding out the small interest amount from bank statements is also not required.
Still have doubts, don't let them bother you, just write to at firstname.lastname@example.org
Some quick links:
TDS rules for FD Interest
Tax Saving Fixed Deposits
Investment in ELSS
Investment in NSC
Investment in PPF
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