Interest on savings account is taxable as per the applicable slab rates for individuals. However considering the genuine hardship faced by middle class taxpayers. Income-tax department has provided relief to them by introducing a new section 80TTA for deduction of interest on savings account with effect from 1st April, 2012.
Taxpayers can enjoy this benefit on interest earned on-
- Saving Bank Account (including co-operative banks)
- Post Office savings account.
However the taxpayer is requested to note that this is a deduction and not an exemption. Therefore, interest earned on savings account would first be included in the Gross Total income of an assessee under “Income from Other Sources” and then it would be allowed as a deduction as per section 80TTA. The total deduction allowed does not exceed Rs 10,000/-
No deduction for Interest on Fixed Deposit-
No deduction U/s. 80TTA is allowed for the interest earned on Fixed deposit and hence it is taxable as per the normal slab rates of the recipient individual taxpayer. Moreover, TDS @10% is also deducted on the interest on fixed deposit if the interest earned is more than Rs. 10,000.