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If you earn interest on your savings account deposits, the interest gets added to your income, and you need to pay taxes on such interest.
Let's look at the tax treatment for interest on savings account deposits.
Any interest received on a savings account gets added to taxable income under "income from other sources" and thus increases your income tax payable. However, under section 80TTA of the income tax act, individuals and HUFs can deduct up to ₹10,000 of interest from savings account deposits from their taxable income. The interest income can be from a savings account held with a bank, a co-operative society or post office.
Example 1: Suppose your annual income is ₹13,00,000, and you received interest of ₹10,000 on your savings account deposit. In such a scenario, your taxable income will be ₹13,00,000 and the savings account interest of ₹10,000 will not be added to your "income from other sources." However, if you receive interest of, say ₹40,000, then ₹30,000 (₹40,000 - ₹10,000) will be added to your "income from other sources" and your taxable income will be ₹13,30,000.
Note this tax benefit is not applicable to interest on fixed deposits.
If you earn more than ₹10,000 of interest from savings account deposits, there won't be any tax deduction at source (TDS) on this income. You will have to declare this income separately in your income tax return, and pay the additional tax if applicable.
Use our tax calculator and see how interest on savings account deposits affects your tax payable.