How to Calculate Tax on Savings Account Interest Income

 Interest earned on savings accounts is considered "Income from Other Sources" and is subject to taxation under the Income Tax Act in India. While savings account interest is relatively modest, understanding how tax on savings account interest is calculated is essential for accurate financial planning.

 Tax Calculation Process:

1. Interest Income Threshold: Interest earned up to ₹10,000 per financial year is exempt under Section 80TTA for individuals and Hindu Undivided Families (HUFs). For senior citizens, Section 80TTB increases the exemption limit to ₹50,000.

2. Tax Liability Above Exemption Limit: If the savings account interest exceeds the exemption limit, the surplus amount is taxed as per the individual's applicable income tax slab.

- For example, if an individual earns ₹12,000 in interest, ₹10,000 is deducted under Section 80TTA, and the remaining ₹2,000 is taxed as per their income slab (e.g., 5%, 10%, 20%, or 30%).

3. TDS Applicability: Savings account interest typically does not attract Tax Deducted at Source (TDS). However, this provision differs for interest earned on fixed deposits or other financial instruments with higher amounts. Always verify with your banking institution.

 Example:

Suppose Raj earns ₹15,000 annually in interest. For a non-senior individual:

- Exemption: ₹10,000 under 80TTA

- Taxable Interest: ₹15,000 - ₹10,000 = ₹5,000

- Assuming a 20% tax slab: ₹5,000 x 20% = ₹1,000 tax payable.

This simple calculation highlights the importance of knowing your exemption threshold and income tax slab for assessing your tax liability.

 Summary

Tax on savings account interest income is calculated based on taxable interest above exemption limits under Section 80TTA and Section 80TTB. The surplus amount is taxed as per the individual’s income slab. Typically, interest earned from savings accounts is not subject to TDS. For efficient tax planning, correctly categorizing income from savings accounts and understanding slab rates is pivotal.

Disclaimer: 

This article provides general guidance on savings account tax calculations. Investors and individuals must evaluate all pros, cons, and statutory provisions before engaging in the Indian financial market. Seek professional advice for personalized tax planning.