Every April, the same surprise shows up for savers. The bank has been crediting a few hundred rupees every quarter into your account, and at the end of the year the total is large enough to matter on your return. The tax on savings account interest is not a separate tax. The interest is simply added to your income and taxed at your slab rate, with a small deduction that can shield part of it.
That deduction used to sit in Sections 80TTA and 80TTB of the old Income-tax Act, 1961. From tax year 2026-27 the Income-tax Act, 2025 applies, and the deduction sits in a single section, Section 153. This guide explains who gets how much, what counts as eligible interest, how the new tax regime changes things, and what to do on your return.
How tax on savings account interest works
Interest your bank credits to a savings account is income. You do not choose whether to report it; it goes into your total income for the year, under the head “Income from other sources”, and is taxed at the slab rate that applies to you. The bank does not need to send you a tax bill, and not receiving a TDS certificate does not make the interest tax-free. If the income was credited, it counts.
Many people miss this because the amounts feel small. Say your balance averages ₹3 lakh and the account pays an assumed 3% a year for illustration. That is ₹9,000 of interest. Someone with a ₹5 lakh average balance at the same assumed rate would earn ₹15,000. Neither amount feels like much, but both are taxable income, and the deduction below decides how much of it you actually pay tax on.
Interest on several accounts is added together. If you hold three savings accounts across banks, the deduction limit applies to the total interest, not to each account separately. A post office savings account counts too, as the rule covers deposits with banks, co-operative banks and the post office.
Section 153: the merged deduction under the Income-tax Act, 2025
Section 153 of the Income-tax Act, 2025 allows a deduction from gross total income for interest on deposits with a bank, a co-operative society doing the business of banking, or a post office. The deduction depends on who you are and what kind of deposit it is:
| Who | Maximum deduction | Which deposits |
|---|---|---|
| Individual who is not a senior citizen | ₹10,000 | Savings accounts only, not time deposits |
| Hindu undivided family | ₹10,000 | Savings accounts only, not time deposits |
| Senior citizen | ₹50,000 | Any account, including time deposits |
The deduction is “the whole of the interest up to” those limits. If your interest is ₹6,000, the whole ₹6,000 is deducted and none of it is taxed. If your interest is ₹14,000 and you are not a senior citizen, ₹10,000 is deducted and ₹4,000 is added to your income. The Act defines a senior citizen as a resident individual aged 60 years or more at any time during the tax year, which means an NRI does not qualify for the higher limit.
Older articles, bank notices and tax software labels call this relief Section 80TTA (savings accounts) and Section 80TTB (senior citizens). The Act’s own text does not mention those names, and I could not open the department’s pages on the old sections, so treat that link as background and not as a checked rule. The new Act comes into force on 1 April 2026, so earlier years stay under the older law.
One caution on the source. I read Section 153 in the text of the Income-tax Bill, 2025 as passed by Lok Sabha, not in an official copy of the enacted Act. The Finance Bill, 2026 as introduced did not propose any change to Section 153; its only change to the new-regime section was to drop a reference to Section 144. I could not confirm what the final Finance Act, 2026 says, so check the current text on the Income Tax Department site before you rely on these limits.
What counts as a time deposit, and why it matters
The Act describes time deposits as deposits that are repayable on the expiry of fixed periods. A fixed deposit is the obvious example. This matters in two ways.
- If you are not a senior citizen, interest on your FDs gets no deduction under this section. Only the savings account interest counts, up to ₹10,000.
- If you are a senior citizen, the ₹50,000 limit covers savings and time deposits together, so your FD interest and savings interest share one pool.
So a 62-year-old with ₹30,000 of savings interest and ₹40,000 of FD interest has ₹70,000 of eligible interest, of which ₹50,000 is deducted. A 45-year-old with the same figures can deduct only ₹10,000, from the savings interest, and the full FD interest stays taxable. For how FD interest is taxed and when TDS applies, our guide to tax on FD interest covers the detail.
The deduction under the new tax regime
Here is the catch many people overlook. Under the Income-tax Act, 2025, the new tax regime for individuals and HUFs is computed without most deductions in the chapter that includes Section 153. The section on the new regime lists the exceptions it still allows from that chapter, and Section 153 is not among them. So if you choose the new regime, you cannot claim the savings interest deduction. All your interest is taxed at slab rates.
The new regime has lower slab rates, so the deduction may matter little to your choice. Still, if your total tax is close under both regimes, a senior citizen with ₹50,000 of interest may find the old regime closer than expected. Run both numbers on our income tax calculator before you commit, and read our old versus new regime guide for the full comparison.
Interest that is not covered
The deduction applies only to the deposits named in the section. Interest from other places does not get this relief, even if it looks similar:
- Interest from company deposits, bonds, debentures or peer-to-peer lending.
- Interest from a savings account held by a firm, an association of persons or a body of individuals. The Act says no deduction passes to partners or members from such deposits.
- Interest on loans you have given to friends, relatives or a business.
Some savings-type products are taxed under their own rules, such as small savings schemes and the EPF. Check our guides on those rather than assuming this deduction applies.
Working out your taxable interest: an example
Take Meera, 38, with two savings accounts that together earn ₹12,500 in a year, and an FD that earns ₹30,000 under the old regime. The calculation looks like this.
- Total interest: ₹12,500 plus ₹30,000, which is ₹42,500.
- Eligible for the deduction: only the savings interest of ₹12,500, since she is not a senior citizen.
- Deduction: the lower of ₹12,500 and ₹10,000, which is ₹10,000.
- Added to her income: ₹2,500 of savings interest plus ₹30,000 of FD interest, which is ₹32,500.
Now her father, 66, earns ₹12,500 in savings interest and ₹30,000 in FD interest under the old regime. His eligible interest is ₹42,500, below the ₹50,000 cap, so the whole amount is deducted and none of it is added to his income. These are illustrations only; your actual tax depends on your slab and other income.
Reporting it on your return
Banks report interest to the tax department, so it appears in your annual information statement. Your return should show the full interest, and then claim the deduction separately. A common mistake is leaving out small savings interest on the grounds that it is under the limit. The deduction is a claim against income you have already shown, not a reason to skip showing it.
Before you file, add up interest from every account, including old, dormant or rarely used ones, and the post office. Compare the total with your bank statements and the interest certificate. Our guides to the annual information statement and to filing a return explain where each number lives. If you also hold a joint account, report only your own share of the interest, as a sensible approach.
Who is affected, and who is not
Salaried people with a salary account and little else usually fall well inside the ₹10,000 limit, so the tax on savings account interest is nil for them under the old regime. The people who feel it are those who park large sums in savings accounts for convenience: a business owner holding a year’s tax money, a family that has just sold a property, or a retiree who keeps a big balance for emergencies.
Three situations deserve a closer look.
- Joint accounts: interest belongs to the person whose money it really is, and the deduction is claimed by each holder on that holder’s own share. Do not claim the full ₹10,000 twice on the same pool of money.
- Minor children: the rules on clubbing can add a child’s interest to a parent’s income. Our clubbing guide explains when.
- NRIs: the senior citizen limit needs residence in India, and NRIs usually hold NRO or NRE accounts with their own tax treatment. Read our NRI tax guides before assuming anything here applies.
Practical ways to manage the interest
You cannot dodge tax on interest you earn, but you can see it coming. Around December, add up what your savings accounts have credited so far and compare it with the limit that applies to you. If you are a non-senior over the ₹10,000 mark, the extra interest is taxed at your slab rate, and it adds to your tax bill whenever you pay advance tax or file. Our advance tax guide shows when instalments fall due.
Think too about whether a large idle balance suits you. Money you will need within days belongs in the savings account. Money you will not touch for months may earn more elsewhere, though every option has its own tax and risk. Liquid funds, short deposits and similar choices are for you to weigh using official information, and nothing here is a recommendation. What matters for tax is that the ₹10,000 limit applies to savings accounts only, so moving money into a deposit does not get the same relief unless you are a senior citizen.
Key takeaways
- Savings account interest is taxable income, taxed at your slab rate, whether or not the bank deducts TDS.
- Section 153 of the Income-tax Act, 2025 is where this deduction now sits, earlier known as 80TTA and 80TTB.
- Non-senior individuals and HUFs can deduct up to ₹10,000 of savings account interest; FD interest does not qualify.
- Senior citizens can deduct up to ₹50,000 across savings and time deposits combined.
- The deduction is not available under the new tax regime.
- Show all interest on your return first, then claim the deduction.
If your interest crosses the limit every year, check whether the money in your savings account is doing enough work. Our FD calculator shows what a fixed deposit could earn on the same sum, though remember that FD interest is taxed too.
