Customers are set to get tax-free interest income from their savings bank accounts with the finance minister proposing a tax deduction of up to Rs. 10,000 on interest earned from savings bank accounts.
“I propose to allow individual taxpayers, a deduction of up to Rs. 10,000 for interest from savings bank accounts,” said Mukherjee. “This would help a large number of small taxpayers with salary incomes of up to Rs. 5 lakh and interest from savings bank accounts up to Rs. 10,000, as they would not be required to file income tax returns”.
At present, interest earned from saving deposits is included in the income of an individual and is taxable.
After deregulation of interest rates on savings bank accounts by the Reserve Bank of India in 2011, Indian banks raised interest to 4% from 3% on saving deposits, while private banks hiked it up to 7%. Kotak Mahindra Bank is currently offering 6% interest on saving deposits while Yes Bank is offering 7%.
To get an interest of Rs. 10,000 per annum, a customer will have to keep a balance of Rs. 2.5 lakh with a bank offering 4% interest on saving deposits and a balance of Rs. 1.4 lakh if a bank is offering 7% interest.
“It will incentivise people to keep more money in savings accounts,” said KVS Manian, president, consumer banking, Kotak Mahindra Bank. “It’s a win-win situation for banks and the customers as banks will get low-cost funds while customers will get fund which will be out of income tax net.”