How is Interest on Savings Account Taxed?

Posted on Tuesday, March 11th, 2025 | By IndusInd Bank

A savings account is a fundamental tool for managing your money. But, it is essential to understand the tax implications associated with the interest earned on it. Interest earned on a savings account is taxable as it is considered as ‘income’ of the account holder. 

Being aware of savings account tax implications and benefits can help you plan your finances better and optimise your tax liability.

Tax Implication of Savings Account Interest

Here’s a detailed look at the tax implications of savings accounts:

• Interest on a savings account is taxable under the head ‘Income from Other Sources’ in your income tax return. The interest earned is added to your total income and taxed according to the applicable income tax slab rates.

• For individuals below the age of 60, the interest earned up to ₹ 10,000 in a financial year is deductible under Section 80TTA of the Income Tax Act. For senior citizens, the deduction limit is ₹ 50,000 under Section 80TTB.

• Hence, tax will be applicable on savings account interest earned above these limits. It is important to note that the tax liability is computed according to the applicable slab rates for an individual.

• Note that the cumulative interest from all savings accounts held by an individual is considered for taxation. 

Tax Benefits of Savings Account

If you are wondering how to avoid tax on savings account interest, consider the following points: 

1. Deduction Limits

As mentioned, there is income tax deduction on savings account interest of up to ₹ 10,000 for individuals under Section 80TTA. Meanwhile, Section 80TTB offers deduction up to ₹ 50,000 for senior citizens on the interest earned.

2. No TDS Deduction

No TDS is deducted from savings account interest. This makes it easier to manage cash flow without immediate tax deductions.

3. Ease of Calculation

The interest on a savings account is calculated quarterly but paid out half-yearly or annually. This makes it easier to calculate the applicable income tax on the savings account interest. One can claim the deduction under Section 80TTA and 80TTB accordingly. 

Other Benefits of Savings Account

Savings accounts offer several advantages beyond the tax benefits:

1. Liquidity

Savings accounts provide high liquidity. This means that you have easy access to your funds whenever needed, making it ideal for managing daily expenses and emergencies.

2. Safety

Savings accounts are a secure way to store funds, as compared to keeping them at home. Moreover, funds in savings accounts have insurance coverage up to ₹ 5 lakhs under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme.

3. Interest Earnings

Unlike holding cash, your savings account balance earns interest. This helps your money grow over time and enhances your overall earnings.

4. Convenience

Savings accounts come with features like internet banking, mobile banking, and ATM access. This adds convenience to your financial management. 

Thanks to digital banking services, one can open a savings account in minutes anytime, anywhere. 

With IndusInd Bank, opening a savings account online is quick, 100% online, paperless, and secure. So, you can start earning interest easily and immediately. We offer a range of savings account options to suit different needs and preferences. 

Also Read: What are Nominal and Effective Interest Rates in Savings Accounts

Conclusion

While the interest on a savings account is taxable, utilising the available deductions can help reduce your tax liability. Additionally, the benefits of having a savings account make it a valuable financial tool.

To make the most of what savings accounts can offer, consider opening a savings account with IndusInd Bank. We offer competitive interest rates to help your money grow, along with round-the-clock customer support and a host of digital banking services to manage the growth. What’s more, we offer the unique feature of selecting an account number of your choice. So, no more remembering complex account numbers! 

Open a bank account with IndusInd Bank and start enjoying the best of savings account benefits! 

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.