Do you know about the tax on savings account in India 2023? If not, then you will get all answers related to bank interest rebate in income tax 2023 in this post
Savings accounts not only provide a place to park money temporarily, but also give you some interest on the amount parked in the account. And this interest on the savings account is taxable. But there is a small helpful catch. Only if the interest earned is above a certain limit, then it becomes taxable.
How much savings account interest is tax-free in India?
As per the 80TTA deduction, interest income up to a maximum of Rs 10,000 per year from a savings account is tax-free.
So yes, the interest on the savings account is taxable in India. And this limit of Rs 10,000 is the so-called savings account tax limit. Or you can say, saving bank interest exemption FY2023.
Section 80TTA is applicable to Indians younger than 60 years. For senior citizens, there are higher benefits available. Those above the age of 60 can claim deduction on interest income under section 80TTB up to Rs 50,000 per year.
Remember, the deduction available under section 80TTA is only applicable to interest earned from Savings Account and not on interest earned from fixed deposits or term deposits.
Also, this deduction is available on the interest income from all savings bank accounts held in various banks, post offices, etc. by an individual. So you cannot claim a Rs 10,000 deduction for interest from each of your saving accounts.
So it is established that an amount up to Rs 10,000 in savings account interest is tax-free. That is, Rs 10,000 is the upper limit of the savings bank interest rebate in income tax 2023.
But what about the taxability of the interest exceeding Rs 10,000 per financial year from savings account?
Obviously, it will be taxed!
So let’s say your interest income from the savings accounts is Rs 9000, then you don’t have to pay any tax on it. But if it is Rs 19,000, you need to pay income tax on the amount above Rs 10,000, i.e. on Rs 9000 according to your tax slab.
If you do a comparison of saving bank interest in India, you will find that the interest rates range from 2.5% to 4% but can go up to 7% (offered by some newer banks looking to attract customers). The actual rate will depend on the bank you are dealing with and the amount you park in the account.
Given the Rs 10,000 tax-free limit of savings account interest, how much money can you keep in the savings account to earn Rs 10,000 in tax-free interest every year?
It will depend on the interest rate of your bank account. So…
- At 2% interest, the amount required in the savings account is Rs 5.0 lakh
- At 3% interest, the amount required in the savings account is Rs 3.3 lakh
- At 4% interest, the amount required in the savings account is Rs 2.5 lakh
- At 5% interest, the amount required in the savings account is Rs 2.0 lakh
- At 6% interest, the amount required in the savings account is Rs 1.7 lakh
- At 7% interest, the amount required in the savings account is Rs 1.4 lakh
So that is the answer to the question about how much money can I save in my savings account without tax?
So if you generally just keep a few months’ worth of expenses in Savings Account (as part of your emergency fund), then most probably, the amount will be tax-free. That is assuming your expenses are not extremely high! To know more, do read how to make most of your savings account.
Please note that the banks do not deduct TDS on savings bank interest. So the interest from your SB account should always be declared in the tax return under the heading of income from other sources. Don’t try to hide it as the government knows everything.
In general, it doesn’t make sense to keep a lot of money in a savings account. And I am sure you know why. A lower interest rate is one thing. And on a funny note, even the name suggests that it’s a savings account and not an investment account. So that should be remembered. Another reason would be that if you keep money easily accessible in a savings account, you might be tempted to use it unnecessarily. Once in a while, that is fine. But you need to be careful. Also, if you have to park a large amount in a savings account, then make sure that you pick one that is amongst the safest banks in India. Another reason that bank employees are like vultures. If they see too much money in your savings account, they will come after you selling nonsense and unsuitable products to you like Ulips and whatnot. Do read why you shouldn’t ask for advice from banks.
One good possible alternative to a savings account (beyond an amount of money) can be liquid funds. These are low-risk debt funds where returns from liquid funds can be expected to be higher than a savings account but do note, are not guaranteed.
Another possible and safer alternative can be a sweep-in deposit facility in savings account where as soon as your saving account balance exceeds a given threshold limit (stipulated by you), the excess amount is automatically converted into a fixed deposit and it begins to earn the regular fixed deposit interest. In case you need the money back, the FD is liquidated automatically. So basically, the facility tries to earn a higher rate of interest on fixed deposits tied to the savings bank account and gives the ease of withdrawing money i.e. full liquidity.
And if you are curious about how to calculate interest on savings account, then the answer is that the interest on a savings account is calculated daily on the closing balance. Also, the interest is credited to the savings account on a monthly or quarterly basis generally.
So that was about the tax on savings account India 2023 or the taxation of interest income from Savings Bank account. To summarize, under section 80TTA, a deduction of up to Rs 10,000 per year is allowed on the interest income from savings accounts. This is known as the saving bank interest exemption FY2023. The interest amount above Rs 10,000 tax-free limit is taxable as per the tax slab of the individual (2023) as per the income tax on saving bank account interest in India.