Thursday, June 23, 2011

Tax-free bank interest



The interest your balance earns in a regular savings account with a bank is taxable. But if you open a savings account in a post office, the interest is tax-free. If you maintain an average balance of Rs 50,000 in your bank account, you would earn roughly Rs 2,000 as interest income in a year. In the highest tax bracket, the taxman will shave off 30% (or Rs 600) from this income, leaving you with only Rs 1,400.

However, if it is a postal savings bank account, the interest earned is tax-free. There is, of course, a ceiling of Rs 3,500 per account on this exemption in a year. In case of joint accounts, the ceiling is higher at Rs 7,000 a year. But this is a reasonable limit because very few people would keep more than Rs 1 lakh in their savings account.