Section 80TTA is a part of the Indian Income Tax Act introduced in 2013, aimed at providing tax relief to individuals and Hindu Undivided Families (HUFs). It allows a deduction of up to Rs.10,000 from the taxable income for interest earned on savings accounts held with banks, cooperative societies, or post offices.
This provision encourages savings and financial inclusion, benefiting taxpayers by reducing their tax liability while fostering a savings culture. Since its inception, Section 80TTA has remained relevant in the tax landscape, serving its intended purpose of incentivizing savings and responsible financial behavior.
What is Section 80TTA
Section 80TTA deduction of the Income Tax Act allows the deduction of up to Rs 10,000 per year on savings account interest. Except for senior citizens, it applies to all individuals and HUFs (those above 60 years).
- Section 80TTA deduction was included in the 2013 Finance Bill and became effective for the 2012-13 fiscal year.
- Remember, the deduction available under Section 80TTA is over and above the Rs 1,50,000 limit of Section 80C.
- Also, note that Section 80TTA is not applicable to senior citizens who are 60 years or older as Section 80TTB applies to them as per the Act.
Features of Section 80TTA
- The tax exemption from interest income in savings account is limited up to ₹10,000 per annum
- This deduction is for the savings accounts held by individuals and Hindu Undivided Family (HUF) only
- A person can have multiple savings accounts with different banks. But the cumulative interest income from all those accounts together should be under ₹10,000 to get a complete exemption
- In case, the total cumulative interest earning exceeds 10,000 from savings accounts, then tax exemption could be claimed for ₹10,000 only. The additional income in this respect will be subject to income tax.
- The tax deduction under Section 80TTA is over and above the deduction of ₹ 1.5 lakh, which is deducted under Section 80C
- No Tax Deduction at Source (TDS) for savings accounts held by individuals and HUFs
- In case the Gross Total income of an individual is below the minimum taxable income level, then 80TTA will not come into picture even though the interest income from savings bank accounts exceeds 10,000. For example, if the income for an individual for a financial year is ₹200,000 then he is exempted from paying any income tax. Now, if out of that ₹200,000 income, interest income totals ₹50,000, still it is not taxable because the entire income is beyond the scope of tax liability and the scope of applying Section 80TTA is not attained. In such cases, the individual does not need to file any tax return.
Type of Interest Incomes Allowed and Not Allowed as Deduction Under Section 80TTA
Type of Interest Incomes Allowed as Deduction Under Section 80TTA | Interest Income Not Allowed as Deduction Under Section 80TTA |
One can claim a deduction for interest income earned from-
| The deduction under Section 80TTA is not allowed for-
|
Who Can Claim 80TTA Deduction?
The Section 80TTA deduction is open to:
- Individuals
- Hindu Undivided Families (HUFs)
- Non-Resident Indians (NRIs) can also benefit from the Section 80TTA deduction. However, there’s a key consideration: NRIs are permitted to maintain two types of accounts in India: NRE (Non-Residential External) and NRO (Non-Residential Ordinary) accounts. Only holders of NRO savings accounts are eligible to claim the deduction under Section 80TTA. Interest earned on NRE accounts is exempt from tax.
- Individuals aged 60 years or above (senior citizens) are subject to a distinct provision, namely Section 80TTB. This differs from the applicability of Section 80TTA for others.
Deduction under Section 80TTA
Section 80TTA is titled as ‘Deduction in respect of interest on deposits in savings account’ in the Income Tax Act.
Here are the salient features of this section:
- You can claim exemption on up to Rs. 10,000 received as interest on your savings account deposits.
- The savings account can be held in any of the following financial institution:
- Bank
- Cooperative society
- Post office
- You can claim exemption on any number of savings accounts as long as the total amount you are seeking exemption on is less than Rs. 10,000.
Exceptions under Section 80TTA
Section 80TTA of the Income Tax Act, 1961 in India restricts certain types of interest incomes from being eligible for deduction. The following interest incomes are not allowed as deductions under Section 80TTA:
- Fixed Deposit (FD) Interest: Interest earned from fixed deposits, including bank fixed deposits and corporate fixed deposits, is not eligible for deduction. Fixed deposits involve depositing a lump sum amount with a financial institution for a predetermined period, and interest is earned on this amount.
- Recurring Deposit (RD) Interest: Interest earned on recurring deposits, a type of savings scheme where individuals deposit a fixed sum at regular intervals, is not eligible for deduction under Section 80TTA. The interest accumulates on the deposits made over time.
- Corporate Bond Interest: Interest earned on corporate bonds, debentures, and other interest-bearing securities issued by companies is not eligible for deduction under this section. Corporate bonds are debt instruments issued by corporations to raise capital.
80TTA Deduction Limit
The interest that has been received from a savings account is deductible up to Rs.10,000 in Section 80TTA of Income Tax Act. If an individual has multiple accounts with different banks, the maximum deduction for all savings accounts is Rs.10,000.
FAQs
What is Section 80TTA?
Section 80TTA of the Income Tax Act allows individuals and Hindu Undivided Families (HUFs) to claim a deduction of up to ₹10,000 on the interest earned from savings accounts held with banks, post offices, or cooperative societies.
What types of income qualify for a deduction under Section 80TTA?
Only interest income from savings accounts qualifies for deduction under Section 80TTA. The deduction does not apply to:
- Fixed Deposit interest.
- Recurring Deposit interest.
- Interest from any other sources like bonds or debentures.