When you leave your money lying around, you might be tempted to spend it. By guaranteeing it in a savings account, you make it grow regularly by earning interest on it. You can choose to open a savings account for a number of personal reasons – to secure your money, set aside an emergency fund, save for a goal such as a wedding, etc.
The best part is – depending on your bank’s rates, you earn decent interest on the amount deposited. Yes, you have to pay taxes on the interest you earn. Let’s explore in detail.
Why should you have a savings account?
In addition to offering your money a safe haven, savings accounts also instill in you financial discipline. By offering a constant rate of return, they also allow you to build up your savings over time. Nowadays, most banks offer net banking and mobile banking so that you can easily carry out and track your account.
You can transact from your savings account using debit cards, credit cards, and payment gateways. You can also transfer funds via NEFT, RTGS and IMPS facilities.
You can access and withdraw the money from your savings account at any time. Indeed, if you do not wish to maintain a minimum balance in your account at all times, you can open an account with zero balance.
Interest earned on savings accounts
By depositing your unused money or salary in a savings account, you earn interest based on the interest rates in your bank. Why does your bank offer interest on your deposits? Because by depositing your money in the bank, you are essentially helping them earn an income. Banks use customer deposits to provide loans to their customers for a variety of purposes – business, home buying, car buying, etc. This is why a bank pays the account holders to deposit money with it.
If you regularly deposit money in a savings account, your money grows thanks to the interest it earns.
Tax on interest income from savings accounts
Savings accounts offer the benefit of non-taxable interest of up to Rs. 10,000, under Section 80TTA of the Income Tax Act. This means that if your annual interest income is less than Rs. 10,000, the amount will be deducted from your taxable income. For example, if your gross taxable income in a year is Rs. 15 lakh and you earn Rs. 20,000 interest on your savings account, only a deduction of Rs. 10,000 will be taken from your income. taxable. For the elderly, however, the tax exemption limit is Rs. 50,000, as prescribed in Section 80 APC.
You must report your interest income on your annual income tax return, which is taxed according to the applicable tax bracket. If you have more than one savings account, you need to take into account the total amount of interest from all of the accounts.
A savings account is ideal if you want to keep your money safe, grow it regularly, and enjoy cash. These accounts are also a good place to start for newbies who want to learn more about financial planning. Before choosing a bank to open an account, understand their interest rates and online banking services.