The total amount of deposits in savings accounts of Indian banks touched 36 lakh crores for fiscal year 2017-18. Financial inclusion has almost doubled the number of bank accounts in the last 10 years, with upto 80 percent Indians using them. 2018 alone saw 536 million zero balance savings accounts.
Did you know that the interest earned on savings account too attracts tax? However, you can enjoy tax benefits under Section 80TTA on the interest income of your savings account for a financial year, if you are aware of it.
What is Section 80TTA?
You can claim a tax deduction for upto a maximum amount of ₹10,000 earned as interest on savings account in a bank for a given year as per Section 80TTA of the Income tax Act. This is available only if you operate a savings account with a bank- either public, private or that managed by a co-operative society.
Interest earned on savings account in a post office is also applicable for this benefit. Bank fixed deposits or deposits with non-banking financial companies do not qualify though.
Who is eligible?
If you are an individual or a Hindu Undivided family, you can claim tax deduction under 80TTA.
What documents are needed?
You just need to keep handy your bank statements for the savings account for the year for which you are filing your tax return. These will help you calculate the interest earned.
How to avail the benefit?
First of all, calculate your interest income from saving accounts in different banks, if that’s the case. This amount will be classified as “income from other sources” when you are filing your taxes. Add up the total interest that you have earned. Now, this amount should be less than ₹10,000 for you to get the tax benefit from Section 80TTA.
In a scenario where the total interest earned on savings account per annum is higher than this specified limit, you can only claim tax deduction for ₹ 10,000. Any amount above this would be taxable.
Can my interest income be higher than ₹ 10,000 and yet I don’t have to pay tax?
Yes, this is when your Gross total income is less than the minimum taxable income, which is Rs 2.5 lakhs. In such a case, even though the interest earned by you on your savings account(s) is more than the advised limit, but still Section 80TTA will not apply.
Well, there you have it. That’s more or less everything you need to know about availing tax benefits on your savings account interest income. So, when filing your returns, simply check your eligibility, get your documents in order, and get cracking on availing those tax benefits!