Savings accounts are an important financial tool to deposit funds, spend on necessary purchases, save, and invest for your future. While savings accounts are beneficial to all, some people know how to maximise their savings. They understand how to save more, earn high interests, avoid unnecessary fees, take advantage of rewards programs, and even save taxes.
Many people think that only the wealthy have access to these tactics and strategies, but that is not true. Anyone can take advantage of tax-saving strategies and maximise the benefits of savings accounts. Whether it is to open the right savings account or implement right financial moves, you too can reduce your taxable income and save on taxes. Here is how.
- Open a savings account in your kid’s name
Section 10(32) of the Income Tax Act gives a deduction of Rs. 1,500 per year on any income earned by a minor child. This deduction helps parents deposit large amounts into their kids’ savings deposit accounts and save taxes on the interest earned. This rule applies to a maximum of two children.
- Open multiple savings accounts
There is a tax exemption of up to Rs. 10,000 on interest earned from savings accounts during a financial year. Section 80TTA of the Income Tax Act provides this benefit to all individuals and HUFs below the age of 60 years. You can take advantage of this provision by dividing your savings into multiple accounts to increase the amount of exempted interest.
For example, if someone has savings worth Rs. 4,00,000 and gets a 3% saving bank interest rate, they would earn Rs 12,000 in interest for the year. This interest is subject to taxation under normal circumstances. However, if they divide this amount into 4 different savings accounts and keep Rs 1,00,000 in each, they would earn up to Rs 3000 in interest from each account, which will be exempted from taxes.
- Open a high interest savings account
Compared to a regular savings account, a high interest savings account helps you to earn a higher interest rate on the balance you hold. Although taxes are still applicable on the interest, the earned amount has the potential to exceed the tax liability.
You can easily open a savings account online through the bank website or visit them at a bank branch and conduct the process offline. Whichever method you choose, make sure to check interest rates, features, withdrawal limitations, minimum balance requirements, and transactions allowed per month. This way, you open a bank account that is right for your needs and helps you earn more for different goals.
To wrap up
There are no additional rules designed for the wealthy to avoid or save taxes on their savings accounts. Instead, they use smart tactics and strategies to optimise their tax positions, some of which are discussed here. By implementing these tax-saving strategies, you can also reduce the amount of tax you owe on your savings account.
Moreover, professional financial guidance can help you implement these techniques more effectively and adjust them to your specific situation. The valuable insights from experts can help you maximise your savings account benefits and minimise tax liabilities, thus, improving your financial stability.