The interest earned on a savings account is the most ignored part of investment planning. Most financial planners or advisors completely ignore this, and the common masses even do not know what the savings account interest rate is and how to maximize their returns by keeping a balance in their savings bank account. Let’s look at how to save taxes on savings bank account interest.
The common masses essentially have a savings bank account, but they fail to get the best returns on their savings bank account for three uncommon facts –
- They are not aware that savings bank account interest rates can be as high as 7%
- They are not aware that interest-earning up to Rs 10,000 from a Savings bank account is entirely tax-free
- They are unaware there is no TDS (tax deduction at source) on interest in a savings bank account.
Analysis of How To Save Taxes on Savings Bank Account Interest
Let us analyze the above one by one – Savings account interest rates can be as high as 7%
Most of us have at least one saving bank account from which we transact frequently. Most banks will ask us to keep a minimum of Rs 5,000 – Rs 10,000 as the average quarterly balance, failing which the bank deducts a charge of non-maintenance of minimum balance in the savings bank account. These savings bank accounts offer around 3.5 – 4.00% interest rates.
However, you may not be aware that there are banks that offer around a 7% interest rate even on a zero-balance savings bank account on the average daily balance that you maintain. While there is no need to maintain a balance as it is a zero balance account, we usually keep some balance to meet our daily needs. Therefore, your savings bank account rewards you by paying the interest even on that amount.
Isn’t it fun getting some extra money while enjoying all the convenience your savings bank account offers?
New Gen Savings Bank Account
This new gen savings bank account interest allows you to transact through their mobile app and provides internet and mobile banking.
To earn higher savings account interest rates, you must open a savings bank account with these banks. Opening a savings bank account nowadays is relatively easy as banks leverage biometrics-enabled ID and Aadhaar cards to ensure no paperwork is involved. You can open a savings bank account in real-time if you have a PAN Card, Aadhar Card, and a smartphone. For the initial account opening authentication, banks generally tie up with various merchant outlets where you can go and get your documents verified.
Tax-Free Interest Limits
Savings bank interest amount up to Rs 10,000 is completely tax-free
We have seen how you can earn up to 7% savings account interest rates from a zero-balance savings account. What if I tell you that the interest accumulated on your savings bank account is tax-free?
Yes, you heard that right! Interest earned from your savings account up to a maximum of Rs. 10,000 per year is tax-free under section 80TTA under the Income Tax Act.
This deduction is available only to individual and HUF Savings bank account holders, but unfortunately, most account holders do not know this.
Therefore, while you can earn annually tax-free from your savings bank account, the interest earned on your money invested in bank fixed deposit or in some other investments is taxable from Re 1.
Remember, Section 80TTA benefit is not available on interest earned on fixed or term deposits with a bank or post office.
There is no TDS on Savings bank interest earned
Save Taxes in India – Watch For Automatic Deductions
As you may be aware, banks, post offices, or other financial institutions deduct TDS on interest if the interest amount for a fixed deposit is more remarkable than Rs. 10,000 per year. The rate of TDS is 10% on the interest income from Re.1 (once you cross the threshold limit of Rs 10,000), provided your PAN number is available with the bank. If the bank doesn’t have your PAN in its records, TDS is deducted at 20% on interest income.
However, there is no TDS on interest earned on a savings bank account, irrespective of any amount in a year. Thus, while you can earn a high savings account interest rate on your savings bank account, the bank does not deduct any tax on it. This is a big benefit for savings account holders but is mostly unknown to them.
However, as a savings bank account holder, your responsibility is to evaluate your interest income and pay the taxes accordingly while filing your ITR. Interest from a savings account is considered “income from other sources.”
Final Thoughts on How To Save Taxes on Savings Bank Account Interest
Saving and managing money in a savings bank account is part of our daily work, and this work can become much more rewarding if you have a savings bank account from which you can earn as much as a 7% savings account interest rate and earn up to a total tax-free amount of Rs 7,000 in a year. You also need not worry, as even if you earn more than 7%, there will be no TDS on the interest earned on your savings bank account. It’s always considered best practice to keep an eye on the economy for signals on where to move your money.