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Why should you opt for a savings account? What are its tax implications?

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For most people, a Savings Account is the first and most fundamental financial product needed at the beginning of their personal finance journey. This type of account can be opened with commercial banks, co-operative banks, and at post offices.

Let’s understand what makes them so special:

  • Purpose
  • Advantages
  • Tax implications

What is the purpose of this account?

The primary role of this account is to provide a safe space to hold your money. Here’s an example of how this account works:

  • You earn ₹1,00,000 each month, out of which you need approximately ₹40,000 each month for all your necessary expenses. Additionally, you keep ₹20,000 aside for miscellaneous expenses. This leaves you with ₹40,000 as savings for each month.
  • If you continue to collect ₹40,000 every month in your home safe, you will have ₹ 4,80,000 in hard cash by the end of the year. A large amount of hard cash deserves to be stored in a secure location. A bank safe is more secure than a home safe. Hard cash can be directly deposited into a savings account. Money deposited in a savings account is always available to the accountholder.

What are the advantages of a savings account?

Along with offering a secure place to keep your money, this account comes with a plethora of advantages. Let’s discuss some of them below.

Offers passive income:

The savings account interest rate allows you to earn passive income. This interest rate may vary based on the amount of funds in your account.

Opens avenues of investment:

This account gives you a variety of options to multiply your money. With this account, you can consider various investments such as:

  • Recurring Deposits
  • Fixed Deposits
  • Mutual Funds via Systematic Investment Plan (SIP)

You can also trade in the stock market, if you link this account with Demat and Trading Accounts.

Offers other additional services:

Depending on the type, this account also makes you eligible for a variety of add-on services. Some of the services include:

  • Credit Cards with exclusive benefits
  • Pre-approved loans
  • Overdraft facilities
  • Cashback offers
  • Reward points and much more

What should you know about the tax implications of this account?

  • The amount deposited in your account is not taxable.
  • The interest earned on the deposited amount is taxable.
  • The amount is taxed under the head ‘Income from other sources.’
  • Under Section 80TTA of the Income Tax Act, the interest earned on your savings is deductible up to ₹10,000 per financial year.
  • Only individuals and Hindu Undivided Families (HUFs) can claim this deduction.
  • The tax benefit is valid on interest earned from all Savings Accounts held in banks, post offices, or co-operative banks.
  • Interest earned beyond ₹10,000 from any of these sources is taxable.

Since the interest earned is taxed, it can help you with tax planning. According to the Income Tax Act, this earned interest is taxable, irrespective of the interest rate.

IDFC FIRST Bank offers high-interest savings account with an array of benefits. To know more about this account, visit our website today.

 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

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