The interest earned on savings bank account is the most ignored part of anyone’s investment planning. Most of the financial planners or advisors completely ignore this and common masses even do not know what the savings account interest rate is and how to maximise their returns by keeping balance in their savings bank account.
They are not aware that savings bank account interest rate can be as high as 7%
They are not aware that interest earning up to Rs 10,000 from Savings bank account is completely tax free
They are not aware that there is no TDS (tax deduction at source) 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 of the banks will ask us to keep a minimum of Rs 5,000 – Rs 10,000 as average quarterly balance failing which the bank deducts a charge on account of non-maintenance of minimum balance in 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 which offer around 7% savings account 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, but usually we keep some balance to meet our daily needs and 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 offered by your savings bank account!
This new gen savings bank account interest allow you to transact through their mobile app and also provide 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 quite easy as banks leverages biometrics-enabled ID and Aadhaar card to ensure that there is no paperwork involved for this. If you have a PAN Card, Aadhar Card and a smart phone you can open savings bank account on a real time basis. For the initial account opening authentication, banks generally tie up with various merchant outlets where you can go and get your documents verified.
Savings bank interest amount upto Rs 10,000 is completely tax free
We have seen how you can earn upto 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 bank account upto 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 of the 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 totally taxable from Re 1.
Remember, Section 80TTA benefit is not available on interest earned on fixed deposits or term deposits with a bank or post office.
There is no TDS on Savings bank interest earned
As you may be aware that bank and post offices or other financial institutions deduct TDS on interest if the interest amount for a fixed deposit is greater than Rs. 10,000 per year. The rate of TDS is 10% on 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, interest earned on savings bank account, irrespective of any amount in a year, there is no TDS. Thus, while you can earn 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 bank account holders but mostly not known to them.
However, as a savings bank account holder, it is your responsibility to evaluate your interest income and pay the taxes accordingly while filing your ITR. Interest income from a savings bank account is considered under the head “income from other sources”.
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 where you can earn as much as 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.