We often receive interest on balances in our Savings Bank Account. In fact, individuals will always have some balance in their savings account for which they receive an interest.
Earlier norms on interest on savings bank account has changed
That has changed now. Banks have to pay interest money on the average daily balance in the account of the investors. These means that your interest income from your savings bank account could be definitely higher.
Another thing is that savings bank interest rates have been completely deregulated over the years. While earlier, the Reserve Bank of India had stipulated a maximum interest of 4 per cent that banks could pay on the balance in savings account, the same has been deregulated now. Banks are now free to fix any interest rate that they wish to pay.
For example, while most banks still pay an interest rate of 4 per cent, Yes Bank pays an interest of 7 per cent, while Kotak Mahindra Banks pays an interest rate of 6 per cent on the balances in savings account. Thus, on all fronts investors are earning a much higher return then they were earlier from their savings account.
Is the interest income on SB account taxable?
If your interest income exceeds Rs 10,000 in the financial year, then it is taxable. You have to show the amount of interest earned on the savings bank account and pay tax accordingly depending if the amount has exceeded Rs 10,000 by way of interest or not.
It's also important to remember that there is no TDS that is cut on a savings bank account. What an individual needs to do is show the interest earned from the savings bank account under the "income from other sources", while filing his tax returns and then claim exemption of Rs 10,000 accordingly. The tax treatment for savings bank account interest is not the same as the case of a bank deposit where a TDS is deducted if the interest income exceeds Rs 10,000 in a financial year. No TDS is deducted on SB accounts.