Did you know that the interest you receive on your savings account is actually taxable? However, since the government is always trying to encourage its citizens to make small savings, there are tax benefits on the basic savings account as well. Let us take a detailed look at the provisions under the Income Tax Act that allow you to claim tax exemption on savings account interest.
Deduction under Section 80TTA:
Section 80TTA is titled as ‘Deduction in respect of interest on deposits in savings account’ in the Income Tax Act.
Here are the salient features of this section:
- You can claim exemption on up to Rs. 10,000 received as interest on your savings account deposits.
- The savings account can be held in any of the following financial institution:
- Cooperative society
- Post office
- You can claim exemption on any number of savings accounts as long as the total amount you are seeking exemption on is less than Rs. 10,000.
Exceptions under Section 80TTA:
Section 80TTA can be applied only in case of savings accounts and not on term deposits, fixed deposits or recurring deposits.
Interest Changes in Banking:
Earlier, the Reserve Bank of India (RBI) had set the savings account interest rate at 4%. Also, the interest was given by banks based on the minimum balance in a quarter. However, now the RBI allows banks to fix higher interest rates if they wish to, and many banks are offering 6% interest on savings accounts. Banks now calculate interest based on the daily balance and not on the minimum balance. This means that you are likely to be getting higher interest amounts per quarter than earlier. Checking your bank statement every month will help you keep a tab on this.
If your savings accounts are generating interest amounts higher than Rs. 10,000 in a financial year, you will be able to claim deduction only up to Rs. 10,000. The remaining interest amount you received will be added to your total income and income tax charged on it.