How to Calculate Tax on Bank Savings Account?

It is a normal thing we own tow smartphones, two watches and yes, more than two bank savings accounts. However, very few are aware of the fact that these bank savings accounts earn interest and how to calculate the implications of the taxes.

Most of the banks in India offer a standard interest rate of around 4% on savings accounts. It may also go up to 6-7% under some special schemes by some banking institutions. The received interest on the savings account does not attract income tax up to a certain limit. However, once that limit gets breached, you need to pay off the income tax on the excess earned interest income.

As per the Section 80TTA of the Income Tax Act, anyone can save a maximum of up to Rs.10,000. It is on his/her total earned interest from savings accounts in a fiscal year. Any income above that limit will surely levy taxes.

However, you should also note that this exemption is valid only for individuals and not for seniors or super senior citizens.

Thus, the important question that arises here is – how to calculate tax on the taxable amount and the TDS. Don’t worry as this post is here to help you know some vital information considering your queries. Read on!

How to calculate tax on the taxable amount and TDS?
The concept is simple when it comes to the calculation of the taxable amount in the case of savings accounts. When your received or earned interest income on all savings accounts is less than Rs.10,000, you are free from paying income tax. It is valid irrespective of the applicable tax slabs.

When the income from interests goes up and beyond Rs.10,000 limit, all excess amount becomes taxable. As a result, it gets mentioned under “income from other sources/heads” at the time of computation of the taxable income (gross).

Let’s know more about it and make things clear by a relevant example

Example:
If you have 3 savings accounts and you earn Rs.5,000, Rs.10,000 and Rs.11,000 as the interest income on each of the accounts in a financial year. As a result, the final income from the 3 accounts is Rs.26,000.

Now, you should not assume that he needs to pay the income tax only on the received interest from the 3^rd account as it is more than Rs.10,000. He/she will need to pay the income tax on Rs.20,000 as per his/her applicable tax slab he/she comes under.

Deduction limits in the savings account
You should also be aware that bank account holders can also save a portion of interest profits from being taxed. The interest received on all savings accounts need to be added together. If the final amount is below Rs.10,000, you will not need to pay any taxes on the excess earned interest. If the same goes beyond Rs.10,000, the extra amount becomes taxable.

You can also save up to Rs.3,500 for individual accounts and up to Rs.7,000 for all joint accounts. It is valid if the interest earnings are gained via the Post Office savings account. It is made available as per the Section 10(15) (i), and the exemption under the same could be claimed under Section 80TTA.

The Section 80TTA lets you enjoy the tax deduction on interest income earned on the bank savings account of up to Rs.10,000,

Some of the basics of the tax calculations on your banks’ savings account are now discussed. If you did not know how to calculate tax on it, you would now be in a comfortable position to file your ITR without issues concerning the savings account.

If you don’t know how to calculate tax on your taxable income or salary, you can also use the online income tax calculator. The tool is available for free at many financial websites and apps.