Interest earned on savings accounts is taxable under the Income Tax Act, 1961. Although many people believe this interest is entirely tax-free, only up to ₹10,000 is deductible in a financial year under Section 80TTA for individuals and Hindu Undivided Families (HUFs). Any interest income exceeding this limit must be declared under “Income from Other Sources” in your Income Tax Return (ITR). To stay compliant and make the most of available tax benefits, it’s important to understand how interest income—including that from fixed deposits, recurring deposits, and post office savings—is taxed. This article offers a comprehensive overview of the tax implications on savings account interest.
Savings Account Interest: Income Tax Treatment & Deduction Benefits
Tax Treatment on Interest from Bank Savings Accounts
Interest earned on a bank savings account is fully taxable and must be reported under the head ‘Income from Other Sources’ in your Income Tax Return (ITR). The amount is taxed according to your applicable income tax slab, depending on your total income for the financial year.
Example:
If Mr. Sharma earns ₹15,000 in interest from his savings account during FY 2025–26:
If his total income is between ₹5–10 lakh, the ₹15,000 will be taxed at 20%, resulting in a tax of ₹3,000.
If his income exceeds ₹10 lakh, the interest is taxed at 30%, and he will owe ₹4,500 in tax on this income.
Although savings account interest is fully taxable, there are deductions available under Sections 80TTA and 80TTB that can reduce your liability, as discussed below.
How Is Savings Account Interest Calculated?
Savings account interest is computed daily based on your closing balance, as per RBI guidelines. However, banks typically credit this interest monthly, quarterly, or half-yearly, depending on their internal policies.
Formula for Monthly Interest:
Interest=Daily Closing Balance×Interest Rate×Number of Days365\text{Interest} = \frac{\text{Daily Closing Balance} × \text{Interest Rate} × \text{Number of Days}}{365}
Example:
If your daily closing balance is ₹50,000 at an annual interest rate of 3.5%, your interest for a 30-day month would be:
(₹50,000×3.5(₹50,000 × 3.5% × 30) / 365 ≈ ₹143.84
This interest amount must be included in your total income and declared under ‘Income from Other Sources’ in your ITR.
Note: Banks do not deduct TDS on savings account interest. However, the entire amount is taxable as per your slab rate
Section 80TTA vs. Section 80TTB – Tax Deductions on Interest Income
To offer some relief, the Income Tax Act provides deductions on interest income through Sections 80TTA and 80TTB:
Section 80TTA
Applicable To: Individuals and HUFs below 60 years of age
Deduction Limit: Up to ₹10,000 per financial year
Covers: Interest from savings accounts in banks, post offices, and cooperative banks
Excludes: Fixed and recurring deposits
Purpose: Encourages savings and lowers tax burden for general taxpayers
Section 80TTB
Applicable To: Resident senior citizens (aged 60 years and above)
Deduction Limit: Up to ₹50,000 per financial year
Covers: Interest from savings accounts, FDs, RDs, and post office deposit schemes
Purpose: Provides broader tax relief for senior citizens with diversified savings
Aspect Section 80TTA Section 80TTB Applicability Individuals & HUFs below 60 Resident senior citizens (60+ years) Deduction Limit ₹10,000/year ₹50,000/year Covers Savings accounts only Savings, FDs, RDs, and post office deposit schemes TDS Applicability No TDS on savings account interest No TDS unless total interest exceeds ₹50,000/year
How to Report Savings Account Interest and Claim Deductions (Section 80TTA & 80TTB)
To ensure proper tax compliance and reduce your tax liability, follow these steps when reporting interest income and claiming deductions under the Income Tax Act:
1. Understand Taxability
Interest earned on savings accounts is taxable under the head ‘Income from Other Sources’.
Section 80TTA: Deduction up to ₹10,000 for individuals and HUFs (below 60 years).
Section 80TTB: Deduction up to ₹50,000 for resident senior citizens (60+ years).
2. Collect Interest Data
Obtain bank account statements from all banks where you maintain savings accounts.
Add up all the interest credited during the financial year to determine the total interest income.
3. Choose the Appropriate ITR Form
ITR-1: For salaried individuals with simple income sources.
ITR-2: For individuals with capital gains, multiple sources of income, or more complex tax situations.
4. Report Interest Income
Navigate to the ‘Income from Other Sources’ section in your ITR form.
Enter the total savings account interest earned during the year.
5. Claim Deduction
In the ‘Deductions under Chapter VI-A’ section:
Enter up to ₹10,000 under Section 80TTA (if applicable).
Or, up to ₹50,000 under Section 80TTB (for senior citizens).
6. Review and Submit
Verify all income details, deductions, and taxes paid.
Carefully review your ITR and then submit it online through the income tax e-filing portal.
About the Author
Muskan
Muskan Pandiyan is a seasoned content writer with expertise in business registration, taxation, trademark regulations, and corporate compliance. His well-researched articles offer practical guidance, making it easier for entrepreneurs and businesses to understand and manage intricate legal and regulatory processes.
