Income Tax Relations with Interest Earned Through Savings Bank Account
It is common for individuals to park their funds into an account, which will help them in emergency times. Individuals put money in the bank because their money remains safe, and they also get paid for keeping money in the account.
A savings account is the most popular account opened by individuals. The account usually carries enough funds to cover regular monthly expenses, and the additional amount is the saving for the month. While the funds in the account give you financial relief, it is important to understand the money’s tax implications.
The interest on the savings bank account is calculated daily. This means the deposits and withdrawals will be considered when calculating the interest. However, the date of credit of interest varies from bank to bank. Certain banks credit monthly, some do quarterly, and some do half-yearly. Individuals earn interest on the idle amount, and the RBI determines the interest rate. This rate stands at 4% on average, although some banks offer as high as 5% to 6% on their savings accounts.
The Income Tax department provides a tax deduction of up to INR 10,000 under Section 80TTA of the Income Tax Act, 1961. Interest is allowed only on deposits from savings bank accounts, co-operative banks, and post office saving schemes. This deduction is available only to individuals and Hindu Undivided Families (HUF). It is not provided to a firm or an association of persons.
This amount is deductible from the interest earned from all the savings accounts. For instance, if an investor earns interest amounting to INR 50,000 from three accounts, INR 10,000 will be deductible, and the balance of INR 40,000 will be taxable as per the income tax slab they fall in. No tax will be deducted at the source (TDS) based on the amount of interest.
It is important to file an income tax return (ITR) to claim the deduction. This is because it is a deduction and not an exemption. Hence, the interest amount will be included in the ITR under the head Income from Other Sources and then deducted. The good news is that the deduction is in addition to the deductions provided under section 80C.
RELATED POSTS :
- Purchase Order & Letter of Credit Financing
- Financial Modeling: Investment Property Model
- Commercial Truck Financing – How is the System Structured?
- Innovative vs. ICICI Bank: Supreme Court settles the regulation; Centre’s Insolvency Code will hold sway over all conflicting Acts
- The Gamer Mouse Buying Guide – Finding The Perfect Mouse For Your Games
Usually, the first bank account opened by individuals is a savings account. Due to liquidity, individuals prefer parking their money into an account instead of a fixed deposit. Also, interest in FDs attracts TDS and is not eligible for any deductions.
