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Interest on Saving Bank Account and Income Tax

23 Jul
Interest on Saving Account-MyBizz

Interest on Saving Bank Account and Income Tax

Interest on Saving Bank Account

Is Interest in Saving bank account taxable?

Interest earned on Saving Account is considered as Income from other Sources. This needs to be declared in your income tax returns. No TDS is deducted from the interest on Saving Bank Account. Before 1st Apr 2012 it was taxed based on your income slabs.

From FY 2012-13 under the new section 80 TTA of the Income-tax Act, deduction up to an extent of Rs 10,00 in interest from all the bank accounts is allowed to an individual or Hindu undivided family, Interest over Rs 10,000 will be taxed at marginal tax rate of an individual. This is applicable from the assessment year 2013-14(Financial Year 2012-13) and subsequent assessment years. Note: This deduction is just for interest on Saving Bank account and not on Fixed Deposit or RD.

Is TDS deducted on the interest on Saving Bank account?

No TDS is not deducted on interest on Saving Bank account, irrespective of the amount of interest earned. As TDS is not deducted, interest from Saving Bank account does not show up in Form 26AS.

What is Section 80TTA of Income Tax Act?

The Finance Bill or Budget 2012  inserted a new section 80TTA in the Income Tax Act of 1961 which provides

  • Deduction up to Rs. 10,000 to an Individual / HUF from Gross Total Income towards Interest on saving bank Account (not being time deposits)
  • This deduction is not provided to saving account of a firm, an association of persons or a body of individuals,
  • Saving bank account should be maintained with a bank or society or post office.
  • The deduction allowed is  interest received or Rs. 10,000 whichever is lower.
  • If interest earned is more than 10,000 then balance amount will be taxable as before i.e considered as Income from Sources and taxed as per your slab rate.
  • The deduction is in addition to deduction of Rs. 1 Lakh of section 80C of the Income Tax Act-1961.
  • Please note that Interest from Saving Bank Account is not exemption but a deduction. Our article Exempt Income and Income Tax Return explains exempt Income in detail.
  • The interest earned on savings account is exempted from TDS under Section 194 A of Income Tax Act i.e No TDS is deducted on interest from saving account.
  • The section is applicable from April 01, 2012 and will apply from AY 2013-14 and onwards.

For example , If the interest on saving bank account received is Rs. 12,500, then effectively only Rs. 2,500 will be taxable.

The deduction available under Section 80TTA makes the scheme of non-filing of returns by salaried taxpayers in case of salary income plus savings bank interest up to Rs 5 lakh more friendly.

Is the deduction per saving bank account or all saving bank accounts together?

The deduction towards interest on all saving accounts taken together cannot exceed Rs. 10,000.  This deduction is available on interest income from all savings bank accounts that a taxpayer might have in banks, cooperative societies or post offices.You cannot have multiple deductions for multiple savings bank accounts

Example : If you get  Rs. 21,250 from three saving accounts, you will be entitled for Rs. 10,000 only as deduction under section 80TTA & the balance amount of Rs. 11,250 will be taxable as earlier.

How much money should be in the account(s) at what interest to earn 10,000 interest income?

To earn an interest income of Rs 10,000, one needs to have

  • Rs 1.6666 lakh at 6% (.06 * 166660)
  • Rs 1.42 lakh at 7%
  • Rs 2.5 lakh at 4%

How to show Interest on Saving Bank account in Income Tax Return?

As discussed in our article, How to Calculate Income Tax, tax on Income earned in India depends on type of Income for example: Income from Salary or Pension, Income from House Property etc. Income Interest from Saving Bank Account comes under the category of Income from Other Sources as shown in picture below from ITR2 and ITR1.  Our article Income from Other Sources discusses it in detail.

Income from other sources in ITR2

Income from other sources in ITR2

Income from other sources in ITR1 excel

Income from other sources in ITR1 excel

This year Income Tax Return Forms have the new section 80TTA in Deductions under Chapter VI-Aalong with 80C, 80D as shown in picture below for ITR1.(It’s similar for ITR2)

Show Saving Bank Interest under section 80TTA

Show Saving Bank Interest under section 80TTA

You need to add interest from saving account to  Income from other sources and then claim deduction under section 80TTA. If your total interest income from ALL your saving bank accounts

  • is less than  or equal to Rs 10,000  For example if your interest from ALL saving bank accounts is Rs 8,000 you need to show 8000 in income from other sources and then show Rs 8000 for section 80TTA . 
  • is more than Rs 10,000 say 12,000  then add 12,000 to Income from other sources and then show Rs 12,000 in Section 80TTA. ITR should automatically give you deduction for 10000 and calculate tax on rest as shown in image below

Show Saving Bank Interest in ITR under section 80TTA

Show Saving Bank Interest in ITR under section 80TTA

Note: If your interest income from Saving Bank account is more than 5000 you can still use ITR1 as this is a deduction and not exemption For details on exemptions read Exempt Income and Income Tax Return

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