Interest from your savings account counts as income that the Indian government taxes

The interest your bank pays you on a savings account is taxable income. This means you must report it to the Income Tax Department, and you may owe tax on it depending on how much interest you earned and your total income for the year. The tax applies to every rupee of interest — there is no threshold below which it becomes tax-free, though there are some situations where you do not have to file a return.

The tax rate depends on your income bracket. If you fall into the 20% tax slab, you pay 20% of your interest as tax. If you are in the 30% slab, you pay 30%. The bank does not automatically take this tax from your account — you are responsible for reporting it when you file your income tax return, usually by 31 July each year.

Key Takeaways

  • All savings account interest is taxable income in India, with no minimum threshold that makes small amounts tax-free.
  • You report interest earned during the financial year (1 April to 31 March) on your income tax return filed by 31 July.
  • Banks provide a Form 26AS or statement showing interest paid, which you use to calculate your tax liability.
  • If your total income is below the threshold for your age and status, you may not need to file a return, but you still owe tax on the interest if you do file.
  • Interest earned in a joint account is split between account holders based on their ownership share, and each person reports their portion.

How the tax is calculated and reported

When you file your income tax return, you add the interest you earned to your other income — salary, business profit, rental income, or anything else. The total determines which tax slab you fall into, and you pay tax on the full amount at that rate.

Your bank sends you a statement or Form 26AS by the end of May showing all interest paid to you during the financial year (1 April to 31 March). You use this figure when you file your return. If you earned interest in multiple accounts at different banks, you add all of it together.

The calculation is straightforward: if you earned ₹5,000 in interest and you are in the 20% tax bracket, you owe ₹1,000 in tax on that interest. You pay this when you file your return or through advance tax instalments if your total tax liability is high.

When you must file a return even if your income is low

The Income Tax Department sets a threshold — the amount of income below which you do not have to file a return. For the financial year 2023–24, this threshold is ₹2.5 lakh for most individuals under 60 years old, and ₹3 lakh for those 60 and above. However, these thresholds explore only if you do not have certain types of income.

If you have interest income, you must file a return even if your total income is below the threshold — provided you have other income like salary or business profit. If your only income is interest from savings accounts and it is below the threshold, you may not need to file. However, if you file voluntarily, you still owe tax on the interest.

The safest approach is to check with a tax professional or use the Income Tax Department's website to confirm whether you must file based on your specific situation. Filing when you are not required does not hurt you, and it creates a record of your income.

Interest in joint accounts and how it is taxed

If you hold a savings account jointly with another person, the interest is split between you based on your ownership share. If you each own 50%, you each report 50% of the interest on your individual returns. If the ownership is unequal — say 70% and 30% — the interest is split the same way.

The bank needs to know the ownership split to report interest correctly. When you open a joint account, you declare whether it is held as "joint tenants" (equal shares) or in some other proportion. Make sure this is correct, because the bank uses it to calculate each person's share of interest for tax purposes.

Each account holder reports their share of interest on their own return. This means if you and your spouse hold a joint account earning ₹10,000 in interest with equal ownership, you each report ₹5,000 on your respective returns.

Tax-saving accounts that reduce interest tax

A regular savings account offers no tax advantage on interest. However, the government offers accounts where interest is either tax-free or taxed at a lower rate. The most common is a Senior Citizen Savings Scheme (SCSS), available to people 60 and older, where interest is fully taxable but the rate is higher than a savings account.

A Public Provident Fund (PPF) account, available to anyone, earns interest that is completely tax-free. You can deposit up to ₹1.5 lakh per financial year, and the interest you earn is not reported on your income tax return. This makes PPF useful if you want to save without increasing your taxable income.

A Tax-Free Savings Account or similar products offered by some banks also exist, though they are less common. Before opening any account marketed as "tax-free", confirm with the bank that interest is genuinely exempt from income tax, not just that the bank does not deduct tax at source.

Tax deducted at source and what it means for you

Banks do not automatically deduct income tax from your interest. However, if your interest income from all banks combined exceeds ₹40,000 in a financial year (or ₹50,000 if you are 60 or older), the bank must deduct Tax Deducted at Source (TDS) at the rate of 10%. This is a withholding — the bank sends this tax to the government on your behalf.

When you file your return, you claim credit for the TDS the bank deducted. If your actual tax liability is less than the TDS deducted, you receive a refund. If it is more, you pay the difference. Either way, the TDS counts toward your total tax obligation.

You can avoid TDS by submitting Form 15G (if your total income is below the threshold) or Form 15H (if you are 60 or older and your income is below the threshold) to your bank. These forms tell the bank not to deduct tax because your income does not require it. However, you still owe tax on the interest if you file a return.

Reporting interest on your income tax return

When you file your return using the Income Tax Department's portal or through a tax professional, you enter interest income in the "Income from Other Sources" section. You will need the exact amount from your bank's statement or Form 26AS.

If you earned interest from multiple banks, add all of it together and report the total. Keep copies of your bank statements showing interest paid — you may need them if the Income Tax Department asks questions.

The return form asks for interest earned during the financial year (1 April to 31 March), not the calendar year. Make sure you are using the correct period when you add up your interest.

Frequently Asked Questions

Do I have to pay tax on interest if I earned less than ₹1,000?

Yes, all interest is taxable regardless of the amount. However, if your total income is below the filing threshold for your age and status, you may not have to file a return. If you do file, you owe tax on the interest at your applicable rate.

What happens if I do not report interest income on my return?

The Income Tax Department has records of interest paid to you from banks' TDS reports. If you do not report it and your income is high enough to require a return, the department may send you a notice asking for an explanation. It is safer and simpler to report it.

Can I claim a deduction for interest I earned?

No, you cannot deduct interest income. You report it as income and pay tax on it. However, if you paid interest on a loan (such as a home loan), you may be able to deduct that interest, which reduces your taxable income.

Is interest from a fixed deposit taxed the same way as savings account interest?

Yes, fixed deposit interest is taxed identically — it is reported as income and taxed at your applicable rate. The same TDS rules explore if the interest exceeds ₹40,000 (or ₹50,000 for seniors).

If my spouse and I have a joint account, do we each report half the interest?

Only if you own the account equally. If ownership is unequal, you each report your share based on the ownership percentage you declared when you opened the account. The bank will confirm this split when you ask for your interest statement.