Interest incurred from your saving bank account is taxable under the head income from other sources. If you are a salaried person and you get your salary credited to your bank account and because of that you are getting high interest then that amount can be taxed with your income from salary.
From assessment year 2013-2014 onwards you need not pay any income tax if your interest income from your saving bank account does not exceed Rs. 10, 000. By this provision, Rs. 10, 000 as interest income from bank is tax free and anything more than that will be taxable after deducting Rs. 10, 000 out of it.
Banks with saving account are offering interest in the range of 4% to 7%. Kotak Mahindra bank is offering 6% where as yes bank is offering 7% interest. A person having a saving bank balance of Rs. 2, 50,000 will get Rs. 10, 000 as interest amount with the interest rate of 4%. If interest rate on your bank saving account has been increased from 4% to 7% then to get an interest amount of Rs. 10, 000 you have to keep a minimum balance of Rs, 1, 43,000 in your bank saving account.
If you are keeping anything more than the above specified limit then the extra amount you receive from your bank account as interest will be taxable as per the income tax provisions.
FAQ on Interest from Saving Bank Account
I have four saving bank account in different banks. Can I claim income tax benefit of Rs. 10, 000 for the interest amount I am getting from each of my saving bank account?
No, under section 80TTA of income tax act you can claim exemption up to Rs. 10, 000 for all of your saving bank account. You can not take multiple deductions based on the bank accounts you have.
Can I claim the above benefit for the interest amount that I am generating from my fixed deposit account?
No, deduction under section 80TTA can be claimed for interest generated on your saving bank account only. Any interest generated from your fixed deposit will be charged to income tax and the tax exemption under section 80TTA will not be available.