Your savings account might just save you a good amount of tax

If you are a risk averse investor, in all probability you have a substantial amount in your savings accounts. Otherwise too, many keep in savings accountsan amount to meetexpenses for six months in an emergency.

But did you know such amounts could actually let you save on income tax?

"Section 80 TTA of the Indian Income Tax act gives you a tax deduction on interest income on savings accounts up to Rs 10,000," saysAmit Dani, chartered accountant and certified financial planner.Both individuals as well as Hindu undivided family can take advantage of this section.

Photo: Thinkstock images

Did you know such amounts could actually let you save on income tax? Photo: Thinkstock images

It has to be remembered that Rs 10,000 is the maximum amount that you can claim deduction on all bank accounts put together. So, if you have multiple banks accounts, do check the interest amount earned on each of them, and see how you can make the most of this section. Given the high expenses that we incur nowadays, the six-month emergency fund could itself fetch you more than Rs 10,000 interest income.

Savings accounts held in public sector, private sector and foreign banks come under this section. It is applicable even if the account is in a cooperative bank or India Post. "Some banks these days offer two-in-one accounts, which is partly a fixed deposit and partly a savings account. Usually called as swipe-in accounts, such accounts do not qualify under this section."

Gone are the days when banks would give you only 4.5 percent per annum interest on savings accounts. Ever since the RBI decontrolled savings account interest rates, new generation private sector banks have raised the bar by offering interest rates in the 6-7 percent rangeon such accounts.

There are times when savings accounts become more attractive than fixed deposits.

Let us look at an example: you park Rs 1 lakh in a savings account that offers you 7 percent. At the end of the year, you earn a tax-free return of Rs 7,000.Now, if you invest the same amount in an FD that offers 8 percent, your post-tax return will be 5.528 percent (for those falling in the 30 percent tax bracket) much lesser than the return from the savings account.

If you have made an interest income up to Rs 10,000 do make the most of the Section 80 TTA by claiming this deduction.

Published Date: Feb 07, 2014 02:40 pm | Updated Date: Dec 24, 2014 02:02 pm