How to Report Savings Account Interest Income in ITR Correctly

Reporting savings account interest income accurately is essential for ensuring full compliance with the Income Tax Act and avoiding mismatches during return processing. Savings interest is taxable and must be disclosed even when banks do not deduct TDS or when the income falls below the deduction limit. The Income Tax Return requires this income to be reported under the appropriate section, supported by bank statements and interest summaries. With updated thresholds and clearer rules for AY 2025-26, taxpayers benefit from a simpler method to calculate, disclose, and claim eligible deductions on savings account interest income.

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Table of Contents

• How Savings Account Interest Income Is Taxed Under Indian Law

• Steps to Calculate and Report Savings Account Interest in ITR

• How Section 80TTA Deduction Works for Savings Account Interest

• Is Savings Account Interest Allowed as a Deduction in the New Tax Regime?

• How Savings Account Interest Works in the Old Tax Regime

• Choosing the Correct ITR Form for Reporting Interest Income

• Common Errors While Reporting Savings Account Interest

• Documents Required for Reporting Savings Interest in ITR

• Ensuring Form 26AS and Bank Interest Match

• Using Platforms Like TaxBuddy for Accurate Interest Reporting

• Conclusion

• FAQs
  

How Savings Account Interest Income Is Taxed Under Indian Law

Savings account interest earned during a financial year is treated as "Income from Other Sources" under the Income Tax Act. Unlike fixed deposit interest, savings account interest is not taxed at source by banks unless specific thresholds are crossed. Instead, it must be added to total taxable income and taxed at the applicable slab rates. The interest is taxable in the year it is credited, not when withdrawn. Although taxable, a partial deduction may be available under Section 80TTA depending on the chosen tax regime and the taxpayer’s category.

Steps to Calculate and Report Savings Account Interest in ITR

To calculate and report savings account interest in the Income Tax Return (ITR), the first step is to gather the total interest credited across all savings accounts during the financial year. This includes interest earned from nationalised banks, private sector banks, cooperative banks, and even post office savings accounts. Since interest is often credited quarterly or half-yearly, taxpayers should review bank passbooks, monthly statements, and annual interest summaries to avoid missing small credited amounts that accumulate over time.

Once the total interest is identified, the next step is to evaluate eligibility for deductions under Section 80TTA. This section allows individuals and HUFs (except senior citizens covered under Section 80TTB) to claim a deduction of up to ₹10,000 on interest earned from savings accounts. The deduction applies only to savings interest and not to fixed deposit or recurring deposit income. If the total savings interest exceeds ₹10,000, only the remaining portion becomes taxable after applying the deduction.

After computing the taxable portion, taxpayers must report it under the schedule titled “Income from Other Sources” in the ITR form. The income is added to the total taxable income and taxed at the applicable slab rates. Since the Interest Statement in the Annual Information Statement (AIS) now captures interest earnings across financial institutions, it is important to reconcile bank data with AIS to avoid mismatches. Any difference between what the bank has reported and what the taxpayer files may lead to a compliance notice.

Taxpayers may also use digital platforms that automate interest aggregation. Such systems read bank statements, categorise transactions accurately, and calculate interest totals without manual effort. They also compare the computed amounts with AIS records to ensure nothing is missed. These tools help reduce errors and make reporting easier, especially for taxpayers who maintain multiple savings accounts across different banks. This approach ensures accuracy, compliance, and smoother filing during tax season.

How Section 80TTA Deduction Works for Savings Account Interest

Section 80TTA offers a deduction of up to ₹10,000 on savings account interest for individuals and HUFs who are not senior citizens. This benefit is available only under the old tax regime. The deduction applies to interest earned from banks, post offices, and cooperative societies. If total interest exceeds ₹10,000, only the excess becomes taxable. Senior citizens, however, are covered under Section 80TTB, which offers a higher deduction on interest but is not available under 80TTA.

Is Savings Account Interest Allowed as a Deduction in the New Tax Regime?

Under the new tax regime, savings account interest does not qualify for any deduction because Section 80TTA has been removed from the list of allowable deductions. This means the entire interest earned from a savings bank account—whether from a public sector bank, private bank, cooperative bank, or post office—must be included in the total taxable income without any relief. Taxpayers opting for the new regime must therefore calculate their tax liability by adding this interest directly under the head “Income from Other Sources.”

This change affects individuals who previously depended on Section 80TTA to reduce taxable income by up to ₹10,000 each year. Since the new regime focuses on lower slab rates instead of deductions, these interest-related benefits are no longer available. As a result, taxpayers must evaluate whether their total deductions, including 80TTA, are significant enough to justify choosing the old regime. For those with higher interest earnings or multiple savings accounts, the absence of the deduction can influence the decision between the two regimes.

How Savings Account Interest Works in the Old Tax Regime

The old tax regime allows taxpayers to apply relevant deductions, including Section 80TTA for savings account interest. Taxpayers first add the full interest earned to their income and then claim up to ₹10,000 as a deduction. The remaining amount becomes taxable based on slab rates. This regime is beneficial for those with higher interest earnings or multiple deductions spread across different sections of the Act.

Choosing the Correct ITR Form for Reporting Interest Income

Where and how the interest is reported depends on the selected ITR form. ITR-1 is suitable for individuals with income from salary, one house property, and limited interest income. Those earning dividend income, capital gains, or foreign income must switch to ITR-2 or ITR-3 as applicable. Reporting interest in the correct form ensures accurate processing and prevents queries from the department.

Common Errors While Reporting Savings Account Interest

Many taxpayers make unintentional mistakes when reporting savings account interest, mainly due to confusion about what is taxable and what needs to be disclosed. One of the most common errors is reporting only the amount that remains taxable after applying deductions, instead of reporting the full interest earned during the financial year. The Income Tax Department requires taxpayers to disclose the entire amount of savings account interest under “Income from Other Sources,” even if only a part of it becomes taxable later.

Another issue arises when taxpayers rely completely on Form 26AS or AIS, assuming these documents capture all interest entries. In reality, savings account interest does not always appear in Form 26AS because banks may not deduct TDS on such interest. AIS may reflect it, but sometimes with incomplete or delayed reporting. As a result, taxpayers who depend solely on these documents may end up underreporting their true interest income.

A frequent compliance error occurs when individuals mistakenly claim the Section 80TTA deduction while opting for the new tax regime. This deduction is available only under the old regime, and claiming it under the new regime often leads to discrepancies between the taxpayer’s ITR and departmental records. Such mismatches can cause the return to be flagged for verification or result in a notice for incorrect deduction claims.

To avoid these mistakes, taxpayers must consolidate interest from all savings accounts, including those that are inactive or rarely used. Choosing the correct tax regime before filing is equally important, as it determines whether deductions like Section 80TTA can be applied. Proper record-keeping, review of bank statements, and accurate reporting ensure compliance and reduce the risk of revisions, mismatches, or scrutiny from the Income Tax Department.

Documents Required for Reporting Savings Interest in ITR

Important documents include annual bank statements, passbook entries, interest credit summaries, and AIS/TIS downloads. These records help verify total interest earned. While not all documents need to be uploaded with the return, maintaining them ensures smooth verification if the Income Tax Department raises queries.

Ensuring Form 26AS and Bank Interest Match

Savings interest may not always appear inForm 26AS, which often leads to confusion. Taxpayers must rely on bank statements to compute interest accurately. After calculating the interest, they should match reported figures with AIS/TIS summaries. In case of discrepancies, it is advisable to cross-check transaction details and ensure consistent reporting across all forms to avoid assessment issues.

Using Platforms Like TaxBuddy for Accurate Interest Reporting

Automated filing platforms simplify the process of reporting interest income by extracting details from AIS, TIS, and Form 26AS. They reduce errors by ensuring that interest is categorised correctly and that deductions are applied only under the appropriate tax regime. Expert-assisted filing helps taxpayers identify missed interest entries and avoid mismatches, enabling a smoother experience and timely processing of returns.

Conclusion

Savings account interest, though small in many cases, must be accurately reported to avoid inconsistencies in tax records. Understanding how it is taxed under different regimes helps taxpayers make better choices during tax return filing. Maintaining proper documents, selecting the correct ITR form, and validating interest entries through reliable platforms ensures a smooth filing experience and compliance with tax laws.

FAQs

Q1. Is savings account interest taxable every year? Yes. Savings account interest is treated as taxable income every financial year and must be reported under “Income from Other Sources.” Whether the interest is earned from one account or multiple accounts, the entire amount credited between April and March must be included in the ITR. Even small amounts are taxable, so failing to report them can lead to mismatches in the Annual Information Statement (AIS).

Q2. Is TDS deducted on savings account interest? Banks normally do not deduct TDS on savings account interest. This means the responsibility of calculating and paying tax on this interest rests entirely with the taxpayer. The amount is taxed at applicable slab rates. Since no TDS is deducted, taxpayers must manually report the interest to avoid underreporting during assessment.

Q3. How much deduction can be claimed under Section 80TTA? Section 80TTA allows a deduction of up to ₹10,000 on interest earned from savings accounts held in banks, post offices, or cooperative banks. This deduction is available only under the old tax regime. It applies exclusively to savings account interest and does not cover interest from fixed deposits, recurring deposits, or corporate bonds.

Q4. Can senior citizens claim deductions under Section 80TTA? Senior citizens cannot claim deductions under Section 80TTA. Instead, they receive a higher deduction under Section 80TTB, which offers relief up to ₹50,000 annually on interest earned from savings accounts, fixed deposits, and recurring deposits. This special benefit is limited to individuals aged 60 years or above.

Q5. Is savings interest taxable under the new tax regime? Yes. Under the new tax regime, savings account interest remains fully taxable with no deduction offered under Section 80TTA. The entire amount must be added to total income and taxed at the slab rate applicable under the new regime.

Q6. Do post office savings accounts qualify for 80TTA? Yes. Interest earned from post office savings accounts generally qualifies for the Section 80TTA deduction. However, some accounts under special schemes may be fully exempt by default. It is important to check whether the specific post office account falls under a tax-exempt category before applying the deduction.

Q7. Should interest be reported monthly or annually? Interest should be reported annually. Taxpayers must sum up all interest credits across every savings account from April 1 to March 31 and declare the total in the ITR. Reporting monthly is not required, and the Income Tax Department assesses this income on a yearly basis.

Q8. What if savings interest is not shown in AIS? AIS may occasionally miss small or irregular interest entries. Even if the AIS does not display certain interest amounts, the taxpayer must report the accurate figure based on bank statements or passbook entries. Reporting a lower amount may result in a mismatch during processing or trigger an automated notice.

Q9. Is interest from joint accounts taxable for both holders? No. Interest from joint savings accounts is taxable only for the person who actually owns the funds deposited in the account. Usually, this is the primary account holder. If both holders contribute funds, the interest must be split proportionately and reported accordingly. Proper documentation helps avoid disputes during assessment.

Q10. What happens if interest income is not reported? Non-reporting of interest income can lead to discrepancies between AIS/TIS and the details entered in the tax return. This may trigger notices under sections like 139(9) for defective returns or 143(1) for mismatches. In more serious cases, penalties and interest may apply for underreporting of income.

Q11. How does TaxBuddy help with interest reporting? TaxBuddy automatically extracts interest-related entries from AIS, TIS, and uploaded bank statements. It identifies eligible deductions under Section 80TTA or 80TTB and applies them accurately. The platform ensures that the total interest is reported without error, reducing the chances of mismatches and helping users file a clean, compliant return.

Q12. Do NRI savings accounts earn taxable interest? Yes and no. Interest earned on NRO savings accounts is taxable in India and must be reported under “Income from Other Sources.” However, interest earned on NRE savings accounts is fully exempt from tax, provided the taxpayer qualifies as an NRI for that financial year. Correct classification of account type in the ITR is essential to avoid errors during filing.