Savings Bank Interest Exemption: An Overview

Are you looking for ways to avail interest exemption on Savings account? If yes, then you’ve reached the right place. In this blog, we’ll talk about the benefits of a Savings Account and how you can get benefits through savings bank interest exemption. We all know how a savings account provides a lot of advantages. Unlike current accounts, account holders can safely deposit and accumulate their savings with a decent interest rate in a savings account. Therefore, if you have a steady income, you should definitely keep your funds in a savings account. Additionally, you can also avail the benefits of savings account interest exemption. Savings bank interest exemption is related to the reduction of taxes on the interest earned from a savings account. 

Most countries have a provision wherein the interest earned on savings account comes under the taxable income category. However, it is important to note that a few governments offer exemptions on this interest up to a certain limit. According to RBI’s guidelines, the interest on a savings account is calculated every day. This recurring calculation is done on the closing balance every day. The savings account interest exemption, however, is added to the account on monthly/ quarterly/ half-yearly basis. 

The Advantage of the Savings Bank Interest Exemption 

The biggest advantage of exemption on savings account interest is that if your interest amounts up to Rs. 10,000, then you will be exempted from tax. You can benefit from this deduction via Section 80 TTA of the Income Tax Act. This can be availed by a person and HUF. It is important to note that if the interest from your savings account exceeds the Rs. 10,000 limit for the FY, then you will be levied a tax.

You should always declare the interest accrued in your savings bank account in your ITR under the heading ‘income from other sources’.

Note:- Remember, your bank will not deduct TDS on savings account interest. 

Tips to Optimise Savings Bank Interest Exemption

It is important to understand the different tax laws in your country to optimise savings account interest exemption. This includes knowing the exemption limits, monitoring interest rates and consulting a tax advisor. However, you can also strategize by keeping money in multiple accounts (if your country allows it), keeping funds in joint accounts, making tax-efficient investments by investing in government bonds and making timely withdrawals.

By following these strategies, you can maximise your savings account interest exemption. As far as NRIs are concerned, around 30% TDS (tax deducted at source) is implemented on the Non-Resident Ordinary/ NRO accounts. Additionally, there is no tax applicable on the Non-Resident External (NRE) accounts.  

Savings Bank Interest Exemption and ITR 

ITR is the formal document that every taxpayer has to file to report their total financial income during every FY (financial year). The taxpayers can file the ITR electronically, through the government website or with the help of a tax counsellor. It is very important to file the ITR accurately before the deadline. At the same time, every person wants to avail the maximum tax benefits on their ITR. Savings account interest exemption is also one such opportunity to get tax exemptions. All you need to do is mention your tax on the interest earned up to Rs 10,000. One should keep in mind that the available reduction is not according to bank account; it is based on the total interest earned on all of their bank accounts.  

Note:– The tax exemption is applicable for every cooperative bank, post office, as well as savings bank account. 

Understanding the Savings Bank Interest Exemption for Senior Citizens

The income tax department launched Section 80 TTA and Section 80 TTB under the Income-tax Act of 1961. It allows a reduction of Rs 10,000 on the interest earned from the savings account. The elderly can claim a reduction of up to Rs 50,000 under Section 80 TTB. In this case, only interest above Rs 10,000/ Rs 50,000 will be taxed. 

The account holders can find the necessary information about their interest receipts in their Annual Information Statement (AIS). During the ITR filing, their reductions under 80 TTA will reflect under ‘Income from Other Sources’ in the ITR form. After this, they have to calculate their gross total income for the FY (financial year). This is done by including all of their income streams and showing the reduction under Section 80TTA. 

Important Note:- Senior citizens cannot take advantage of Section 80 TTA. They are subjected to a limit for tax exemption, i.e. Rs. 50,000. Additionally, there is no provision for TDS reduction on the savings account interest at source.

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