The interest people receive on their savings bank account is considered as their income. Moreover, it is taxable. Then also, people get tax exemption on bank interest. It is offered by Section 80TTA of the Income Tax Act. It provides a tax deduction on interest income through deposits kept in the savings account of certain financial institutions.
Tax Exemption On Bank Interest:
Eligibility And Deduction Limit
Tax exemption on bank interest is applicable to all individual taxpayers and HUF.
In terms of the deduction limit, from the gross income, income interest earned from savings account of up to Rs. 10,000 is tax deductible. Interest is considered “Income from Other Sources” when it is earned over Rs. 10,000 (and above). Moreover, it is taxable. So basically Rs.10,000 is the maximum deduction allowed.
Applicable Savings Accounts And The Necessary Documents
The savings accounts which qualify under tax exemption on bank interest (80TTA) are:
- Bank or banking companies with savings accounts.
- Post offices with savings accounts.
- Co-operative societies indulged in banking with savings accounts.
Moreover, the documents required are bank statements of a person’s savings account, which is enough to help us sort out the interest income and tax deduction on an income.
Section 10(15)(i) – Tax Exemption
This section prevents interest in a post office savings bank interest of up to Rs. 3,500 in an individual’s account and Rs. 7,000 (in a joint account) by virtue of Notification No. 32/2011. Moreover, it is dated back to 3rd, June 2011 with Notification No. GSR 607, 9th June 1989.
The effect cumulatively on Section 10(15)(i) and 80TTA concerns the prevention under Section 10(15)(i) and can be claimed in addition to the reduction under Section 80TTA.
How Is Interest On Savings Account Computed?
The actual calculation method of interest is usually not known as people are educated about the methods involved. Earlier banks gave interest on the available minimum balance in the account in a month. For example, if a person kept a balance of over Rs. 1,00,000 during the entire month except for one day, the balance fell to Rs. 10,000. The bank would pay the person interest calculated on Rs. 10,000.
Moreover, this method has changed now, as banks have begun to offer interest. The interest is calculated on a daily basis on the money lying in a person’s account at the day’s end. This leads to customers receiving better benefits because of high interest calculated on their deposits.