In today’s financial landscape, bank accounts have become indispensable. Within a household, not only parents but also children often have their own accounts, whether for salaries or scholarships, highlighting the necessity of having a bank account number.
Bank accounts typically fall into two categories: Savings Account and Current Account. Those aiming to save money usually opt for a Savings Account.
While a Savings Account offers benefits like bank interest, many are unaware that the interest earned on the deposited amount is not tax-free. This implies that taxes are applicable on Savings Account balances as well.
When Taxes Apply to Savings Accounts
Generally, there’s no limit to the amount of money one can deposit into a Savings Account. Many banks also don’t require maintaining a minimum balance. However, if the deposited amount exceeds a certain limit, the account holder is liable to pay taxes on it.
It’s crucial to keep in mind the taxable limit aligned with the Income Tax Return (ITR). If the balance exceeds this limit, the account holder must pay taxes on the interest earned.
Taxable Amounts
According to the Income Tax Act, interest earned from a Savings Account is considered part of the income. For instance, if an account holder’s annual income is ₹10,00,000 and they earn ₹10,000 as interest on their Savings Account, their total income becomes ₹10,10,000, which is taxable.
The account holder must pay taxes on the interest earned.
Informing the Income Tax Department
As per tax regulations, if an individual holds more than ₹10,00,000 in their Savings Account in a financial year, they must inform the Income Tax Department. Failure to do so could lead to repercussions, including actions against tax evasion.
It’s worth noting that ₹10,00,000 is considered as income and is taxable accordingly.
