Income from savings account is also taxed, know when and how?

Having a savings account in a bank is important because it acts as an emergency fund. Money can be withdrawn from this whenever needed. But if this money is put in schemes like FD, NSC, then it cannot be withdrawn for a fixed time. That’s why it is necessary to have a savings account. Banks also pay interest in lieu of keeping money in these savings accounts. This interest can be from 2.7 percent to 4 percent or even more in some banks. Generally, most major banks are giving interest between 2.7 per cent to 4 per cent. This interest in IDFC Bank is 7 percent.

But many people do not know how interest is being added on the money kept in their savings account. Many people are not able to pay much attention to when and how much interest is added to their account. Actually now banks calculate interest on savings account on daily basis. Some banks add it to your account on a quarterly basis, while some banks add it to your account on a half-yearly basis. Whose information you get on seeing the balance through net banking or seeing the passbook entry. That’s why it is important for you to know how interest is added.

How to add interest on savings

Every bank present in India gives interest between 4 to 6 percent annually. This interest is added by the bankers on a daily basis and added to your account on a quarterly basis, which you get to know by checking the passbook entry or balance. See below example for better understanding

Suppose on the first of the month you have 50 thousand rupees in a savings account. This balance remained from 1st to 5th day. So 50,000 (deposit amount) X 4 (interest rate)/100 divide the amount (2000) by 365 (days of the year) to get 5.57 your interest per day. Now multiply it by 5 to get interest for five days. Means you earned interest of Rs.27.35 in your account in 5 days.

Now suppose that you have withdrawn 4 thousand rupees from the bank. So in the coming days the interest will be added on the remaining 46 thousand rupees. After this, suppose 14 thousand rupees were deposited in the account on 10th. With this the balance will be 60 thousand rupees and interest will be added on that money.

Income tax has to be paid on interest

The bank account holder has to pay tax on the interest earned on the amount kept in the savings account of the bank. Bank deducts 10% TDS on interest. Balwant Jain says that tax has to be paid on the interest, but the benefit of tax deduction can be availed on this also. According to Section 80TTA of the Income Tax Act, all individuals can get tax exemption up to 10 thousand. If the interest is less than Rs 10,000, then tax will not have to be paid.

Similarly, an account holder above 60 years of age does not have to pay tax on interest up to Rs 50,000. If even after adding that interest to your total annual income, your annual income is not enough to become a tax liability, then you can get a refund of TDS deducted by the bank by submitting Form 15G.