Introduction
Salary accounts are popular among employees as they offer convenience, flexibility, and several additional financial benefits beyond just receiving salary payments. These may include interest on balances, cashback rewards, insurance covers, free banking services, and preferential loan terms. While these benefits improve financial access and security, it is essential to understand the tax treatment of benefits received through salary accounts. Some of these benefits are taxable under the Income Tax Act, 1961, while others may be exempt or considered as perquisites depending on their nature and source.
Interest earned on savings
Interest earned on the balance maintained in a salary account is taxable under the head “Income from Other Sources”. However, under Section 80TTA, individuals can claim a deduction of up to ₹10,000 per annum on interest earned from savings accounts with banks, cooperative societies, or post offices. Any amount above this is taxable at the individual’s applicable slab rate.
Cashback and reward points
Many banks offer cashback, reward points, or discounts on transactions made using the debit card or through net banking linked to the salary account. These cashback rewards are generally not taxed separately if received in a personal capacity. However, if they are provided as part of an employer’s reward system or tied to employment, they may be treated as perquisites and taxed accordingly.
Overdraft facilities and concessional loans
Some salary accounts offer pre-approved overdraft limits or concessional loans. If the loan is provided at a lower interest rate than the prevailing market rate, the differential interest amount may be treated as a taxable perquisite in the hands of the employee, especially in employer-sponsored arrangements.
Insurance covers
Salary accounts often include free accident insurance, health insurance, or air travel insurance. If the premiums are fully borne by the bank and not part of the employee’s compensation package, these benefits are generally not taxable. However, if they are provided by the employer and the employee is named as the beneficiary, the value of such benefits may be taxable under the head of perquisites.
Free banking services
Banks may offer free cheque books, demand drafts, ATM withdrawals, or SMS alerts for salary account holders. These are generally considered standard banking services and do not attract any tax liability, as long as they are provided uniformly and are not linked to salary structure.
Gift vouchers and joining bonuses
If a salary account is credited with gift vouchers, bonuses, or cash gifts as part of employer-driven schemes or tie-ups, such receipts are considered part of the employee’s income and are fully taxable under “Income from Salary”. These must be disclosed in income tax returns.
Digital benefit programs
Many modern salary accounts provide discounted access to wellness apps, financial planning tools, or premium subscriptions. If such benefits are offered directly by the bank and not as part of an employer’s salary package, they are not taxable. However, those paid for or reimbursed by the employer may fall under taxable perquisites.
Reimbursements and allowances
Certain salary accounts support expense reimbursements or allowances (such as fuel, travel, or meal vouchers). These are considered part of the salary and are taxable unless specifically exempted under provisions such as HRA, LTA, or conveyance allowances.
Tax deductions at source (TDS)
Salary accounts are closely linked to TDS compliance. Employers deduct tax at source before crediting the salary to the account, based on the employee’s tax declarations and investments. The account serves as a documentation trail for salary income, helping employees and the IT department cross-verify income and tax deductions.
Form 26AS and ITR implications
All credits received through the salary account that are considered taxable (e.g., salary, bonuses, reimbursements) must be declared in the Income Tax Return (ITR). The account serves as a primary audit point for Form 26AS, which records TDS and other financial details. Ensuring accuracy between salary account entries and ITR filings is essential to avoid notices.
Conclusion
While salary accounts offer a host of financial benefits that enhance employee convenience, it is important to understand their tax implications. Interest income, cash benefits, employer-sponsored perks, and rewards must be assessed based on their origin and nature. While many benefits are not taxed directly, others—especially when routed through employers—may count as income or perquisites. Employees should review their salary slips, bank statements, and employer policies to properly declare taxable components. Staying tax-compliant not only avoids penalties but also contributes to better financial planning.
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