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 deposits held in savings account of some financial institutions.
This tax deduction is available to all individual taxpayers and HUF.
Bank statements of your savings account will be enough to help you calculate your interest income and tax deduction on such income.
Section 10(15)(i) exempt interest on post office savings bank interest up to Rs. 3500 (in an individual account) and Rs. 7000 (in a joint account) by virtue of Notification No. 32/2011, dated June 3rd 2011 read with Notification No. GSR 607, dated June 9, 1989. The cumulative impact of section 10(15)(i) and 80TTA is that the exemption under section 10(15)(i) can be claimed in addition to the deduction under section 80TTA.
Many people are either unaware of the actual method of calculation of interest or are not updated with latest method being followed by financial institutions.
Older method: Earlier banks offered interest on the minimum balance available in the account in a month. For example, if you maintained a balance of over Rs. 1 lakh during the whole month barring one day when your balance fell down to Rs. 10,000. Then, the bank will pay you interest calculated on Rs.10,000 only. However, now this has changed.
New method: Banks now offer interest which is calculated on a daily basis on the money lying in your account at the end of the day. As a result, customers are getting better benefits due to higher interest calculated on their deposits.
Can I get deduction under section 80TTA on bank fixed deposits & recurring deposits?
No, because you can claim deduction under section 80TTA only on savings bank account.
Are savings bank accounts liable for TDS deduction by banks?
Savings bank accounts are immune from TDS provisions of section 194A. However, if it is a Non-Resident Ordinary (NRO) savings account, it is liable for tax deduction as per the applicable rate (i.e. 30.9%)
If I earn interest from multiple savings accounts, can I claim deduction on all of them?
There is no provision for separate tax deduction on individual savings account. You can claim a maximum of Rs. 10,000 on the total of interest earned from all your savings accounts.
For example: Suppose Mr. Pratik has 4 savings bank accounts. The interest he earned from each account is Rs. 6,000, Rs. 8,000, Rs. 12,000 & Rs. 2,000 respectively. If he could claim tax deduction up to Rs. 10,000 separately on interest earned from each account, then only Rs. 2,000 out of his interest income would be taxable. However, in reality he can get a tax deduction of Rs. 10,000 only on his total interest income. Therefore, the remaining Rs. 18,000 out of the total Rs. 28,000 interest earned, will become his taxable income.