The interest you receive on your savings bank account is considered as your income and therefore it is taxable. However, you also get some tax deduction on the same income. Section 80TTA of the Income Tax Act offers tax deduction on interest income earned from savings bank deposit.
Who is eligible?
This tax deduction is available to all individual taxpayers and HUF.
Interest income earned from a savings account up to Rs. 10,000 is tax deductible from the gross income. Any interest earned over and above Rs. 10,000 is considered “Income from Other Sources” and therefore taxable.
In other words, maximum deduction allowed u/s 80TTA is Rs. 10,000.
Eligible savings accounts
The following types of savings accounts qualify for deduction u/s 80TTA:
- Savings accounts in bank or banking companies
- Savings accounts in post offices
- Savings accounts in co-operative societies involved in banking business
Are bank fixed deposits and recurring deposits eligible for deduction u/s 80TTA
No. Tax deduction under section 80TTA can be claimed only on savings bank account and not on any other type of account.
Can bank deduct TDS on savings bank account?
No, bank cannot deduct TDS on savings account. TDS provisions of section 194A are not applicable on savings account. However, in case of Non Resident Ordinary-NRO saving accounts banks will deduct the taxes @30.9%.
Can deduction be claimed on interest earned from multiple accounts?
You cannot claim deduction separately from each of your multiple savings accounts. Deduction up to Rs. 10,000 is allowed on the aggregate of interest earned from all your savings accounts.
For example: Suppose Mr. Suraj has 4 savings accounts under his name. Let’s say that interest earned by Mr. Suraj from first account is Rs. 4,000, from second account is Rs. 2,000, from third account is Rs. 8,000 and from fourth account is Rs. 12,000.
So, the total interest income earned by him is Rs. 26,000. If deduction was allowed on each account separately then only Rs. 2,000 out of his total interest income would be taxable.
However, in actuality he will get only Rs. 10,000 as exemption on his total interest income and the remaining Rs. 16,000 will come under taxable income.