Interest earned on a savings bank account that exceeds the deduction cap is taxed as 'Income from other sources' at the taxpayer's tax slab rate. However, if you fail to report it on your ITR, you will receive an income tax notice and as a result you will face penalties. Section 80TTA of the Income Tax Act allows a deduction for interest received on a savings bank account up to Rs 10,000 per year. This limit covers interest from all bank, co-operative bank, and post office savings accounts. It's worth noting here is that the exemption under Section 80TTA is based on the total interest received across all of your bank accounts, not per bank account. Section 80TTA allows individuals under the age of 60 to claim a deduction on interest income. Those aged 60 and above can claim a tax deduction on interest income of up to Rs 50,000 or actual interest income, whichever is lower, under section 80TTB.
Important points to note
- The interest part of a savings account is categorized under "Income from Other Sources."
- The interest income will be disclosed on your tax return and subject to the relevant slab rate of taxation.
- TDS is not due on a savings account, according to Section 19A of the Income Tax Act of 1961.
- For interest received on NRO accounts, TDS is deducted at a rate of 30% for NRIs.
- On NRE accounts, no TDS is withheld by the bank.
- Savings account interest that exceeds Rs 10,000 is taxed as per your tax slab rate.
- Interest earned on a savings account up to Rs 10,000 is legally tax-deductible.
Section 80 TTA of Income Tax Act, 1961
- Individuals and HUFs are the only ones who can take advantage of the deduction whereas companies and firms are not.
- Interest received on all savings accounts held in post offices, banks, or co-operative banks is eligible for an overall deduction of Rs 10,000.
- Interest received from any of these sources over Rs 10,000 is subject to taxation.
Senior citizens over the age of 60 are eligible for a deduction of up to Rs 50,000 per year on interest on savings accounts and fixed deposits under this section. Interest on fixed deposits is also eligible for the same deduction under this section.
Interest received on time deposits, fixed deposits, recurring deposits, or any other, is not eligible for the Section 80TTA deduction. On interest income from bank savings accounts, no tax is deducted at source. Senior residents are not covered under Section 80TTA. On the other hand, section 80TTB allows a senior citizen to deduct interest received on savings deposits and fixed deposits with banks, post offices, or co-operative banks for an amount up to Rs 50,000.