Is interest on savings account taxable?

Is the interest earned on your savings account taxable? The answer is yes. Not only is this question important for financial planning, but also for understanding your tax liabilities. In India, interest earned on your savings account is taxable. However, the Income Tax Act provides some exemptions that can help reduce your tax burden. The key is understanding when interest becomes taxable, how much is exempt, and how to report it properly. The silver lining to tax liabilities on savings account interests is that there is no TDS (Tax Deducted at Source) applicable. But that does not mean you can skip declaring it. You’re expected to report it under the “Income from Other Sources” header while filing your ITR. 

How is interest earned on a savings account?
 

According to the guidelines laid down by the Reserve Bank of India (RBI), interest on savings accounts is determined daily on the closing balance. Although the interest on a savings account is calculated daily, it is credited to your account monthly, quarterly, or half-yearly.

Interest on a savings account is calculated using the formula below:

Monthly interest = Daily closing amount * Rate of interest * Days in month / (Days in a year)

What are the income tax rules on a savings account interest?

Interest generated on a savings account is tax-free up to ₹10,000, under section 80TTA of the Income Tax Act. The interest on the savings account will be taxable in the hands of the recipient if the interest earned from these accounts exceeds ₹10,000.

An account holder can calculate the cumulative interest income earned from the different savings accounts during the financial year for the purpose of calculating the threshold of ₹10,000.

For senior citizens, aged 60 and above, Section 80TTB of the Income Tax Act extends the deduction limit to ₹50,000 per annum on interest earned from savings accounts, fixed deposits, and recurring deposits held with banks, or co-operative societies. This broader scope of eligible interest sources provides significant tax relief, recognising the financial needs and limited income opportunities for senior citizens.

Tax deduction under Section 80TTA 
 

Section 80TTA of the Income Tax Act, 1961, provides a tax deduction for individuals and Hindu Undivided Families (HUFs) on interest income from savings accounts. This deduction is applicable to interest earned from savings accounts held with banks, post offices, or co-operative societies. The maximum deduction allowed under Section 80TTA is ₹10,000 per annum.

It is important to note that this benefit does not extend to interest earned on fixed deposits, recurring deposits, or any other type of time deposits. To avail this deduction, the interest income must be reported in the taxpayer’s annual income tax return.

Tax benefits for senior citizens
 

Senior citizens in India enjoy several tax benefits designed to ease their financial burden.

• Under Section 80TTB, they can claim a deduction of up to ₹50,000 annually on interest income from savings, fixed deposits, and recurring deposits with banks, post offices, or co-operative societies.
• Under the new tax regime, the basic exemption limit is ₹3 lakh for all individuals, including senior citizens (aged 60–79) and super senior citizens (aged 80 and above). Unlike the old regime, the new structure does not offer a higher exemption limit based on age.

Important points: Tax on a Savings Account interest
 

Here are some key points to note about minimising tax on interest earned on a savings account:

• Individuals and HUFs are the only ones who can take advantage of the deduction u/s 80TTA. Businesses and firms cannot avail this deduction.
• Interest earned on any savings account held in post offices, banks, or co-operative banks is eligible for a maximum deduction of ₹10,000.
• Any interest earned over ₹10,000 from these sources is taxed.

Smart banking with IDFC FIRST Bank: Make your interest work harder
 

While tax exemptions give you some breathing space, choosing the right bank account can further boost your earnings. Here’s how IDFC FIRST Bank helps:

• Interest up to 7.00% p.a. is credited monthly which means compounding happens faster.
• ₹10,000 AMB (Average Monthly Balance) variant offers monthly interest credit, ₹1 lakh ATM withdrawal limit, ₹5 lakh personal accident cover, ₹30 lakh air accident insurance, lost card liability up to ₹4 lakh, and purchase protection up to ₹50,000.
• With ₹25,000 AMB variant, you can enjoy all the above benefits with enhanced limits like ₹2 lakh ATM withdrawal, ₹6 lakh on daily purchases, ₹35 lakh personal accident insurance, ₹1 crore air accident insurance, and 1 complimentary airport lounge access per quarter.

The monthly credit frequency paired with these benefits makes IDFC FIRST Bank a strong contender for anyone looking to save smart and reduce tax liabilities.

Conclusion
 

Interest on your savings account may be taxable, but smart choices like claiming tax exemptions and choosing a high-interest, monthly-compounding account, let you keep more of your earnings. IDFC FIRST Bank’s savings accounts combine strong interest rates, monthly compounding, and useful benefits like insurance, lounge access, and low maintenance.

Open an IDFC FIRST Bank Savings Account today and make every Rupee count. Visit our website or call 1800 10 888 for more details.