Is tax levied on your money kept in the bank also? Know the rules that can save you from losing thousands!

“If you have kept money in the bank, then it is safe! What tax is there on it?” If you also think like this, then you are making a big mistake, which can also get you a notice from the Income Tax Department.

It is true that there is no tax on the principal amount in your savings account (say you deposited ₹ 1 lakh). But… the interest you get on that money comes under the ambit of tax.

Come, let us understand this whole ‘game’ of tax in very simple language and also know how you can get exemption on it legally.

So is every rupee of interest taxable? (Know the ‘Brahmastra’ of discount)

No! And this is where the government has given a big relief to the common man like us.

• What is the rule: Under a special rule of Income Tax, Section 80TTA, you do not have to pay any tax on the interest received on your savings account in a year up to ₹ 10,000. This amount is completely tax-free.
• Example: Suppose, in one year you got interest of ₹ 9,500 from your savings account. So you will have to pay zero tax on it.
• But, what if the interest exceeds ₹10,000? If you earn interest of ₹12,000 in a year, then ₹10,000 will be waived off, but the remaining ₹2,000 will be added to your total annual income, and then taxed as per your income tax slab.

A huge confusion: This discount is not on FD and RD!
It is very important to remember that this ₹10,000 rebate is only on savings account interest and not on FD (fixed deposit) or RD (recurring deposit) interest.

Does the bank itself deduct tax (TDS)?

Generally, banks do not deduct TDS on savings account interest.
Bank deducts TDS only when:

1. Your interest should be coming from FD or RD and should be more than ₹ 40,000 in a year.
2. You have not deposited your PAN card in the bank.

Why will we have to be more careful in 2026?

From the year 2026, RBI and Income Tax Department have made surveillance on banks much stricter. Now they have a direct eye on every major and unusual transaction happening in your account. Its purpose is to stop tax evasion and black money.

Therefore, now it has become even more important that you give correct information about the interest received from your bank account in your Income Tax Return (ITR).

Remember, correct information and a little planning can save you from any kind of legal trouble and notice hassles in future.