Most of the individuals own a savings bank account. However, only a few know that the interest received on it is taxable under the ‘Income from other sources’ head. But, there’s Section 80TTA to the rescue that can save taxes on interest received up to Rs 10,000.
Section 80TTA of the Income Tax Act, 1961 provides a deduction of up to Rs 10,000 on the income earned from interest on savings made in a bank, co-operative society or post office. There is no deduction for interest earned from fixed deposits an recurring deposits.
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
- Exemption Limit: The tax exemption on interest earned from savings accounts is capped at ₹10,000 per annum.
- Eligibility: This deduction is available only to individuals and Hindu Undivided Families (HUFs) who hold savings accounts.
- Multiple Accounts: If you have multiple savings accounts across different banks, the total interest income from all these accounts combined should not exceed ₹10,000 to qualify for full exemption. If the total interest exceeds this limit, only ₹10,000 is exempt from tax, and the remaining amount is subject to income tax.
- Additional Deduction: The deduction under Section 80TTA is separate from the ₹1.5 lakh deduction available under Section 80C.
- No TDS: There is no Tax Deduction at Source (TDS) on interest income from savings accounts held by individuals and HUFs.
- Minimum Taxable Income: If an individual’s Gross Total Income is below the minimum taxable limit, Section 80TTA does not apply, even if the interest income exceeds ₹10,000.
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-
|
How to Claim Deduction Under Section 80TTA?
- Determine Eligibility: Confirm that you are an individual or a Hindu Undivided Family (HUF). This deduction is not available to non-individual taxpayers such as companies, partnerships, or LLPs.
- Calculate Interest Income: Calculate the total interest income earned from savings accounts and cooperative societies during the financial year. This includes interest earned on deposits in savings accounts with banks, cooperative societies, or post offices, as well as interest earned on deposits with cooperative societies engaged in banking business.
- Determine Deduction Amount: The deduction under Section 80TTA is allowed up to a maximum of Rs. 10,000. If your total interest income is less than or equal to Rs. 10,000, you can claim the entire amount as a deduction. If your interest income exceeds Rs. 10,000, you can claim a deduction of Rs. 10,000 only.
- Include in Total Income: Add the interest income to your total income while computing your tax liability. This is necessary as the deduction under Section 80TTA is claimed from the total income.
- File Income Tax Return: When filing your income tax return, report the interest income under the appropriate head (such as “Income from Other Sources”) and claim the deduction under Section 80TTA.
Deduction Limit Under Section 80TTA
Rs.10,000 deductions are allowed u/s 80TTA on the interest earned from the savings account. If a person has multiple savings accounts with different banks, then the maximum deduction that can be claimed for all savings accounts put together is Rs.10,000/-.
Deduction under section 80TTA is over and above the 1.5 lakh limit of Section 80C.
The savings account can be with any of the following financial institutions:
- Bank
- Cooperative society
- Post office
You can claim this exemption for multiple savings accounts as long as the total interest amount does not exceed Rs. 10,000
FAQs
If I have a savings bank account in a Cooperative Society, am I eligible for Tax deduction under Section 80TTA?
Yes, you are eligible for Tax Deduction under Section 80TTA if you have a Savings Bank account under a registered Cooperative Society
Can NRIs claim a deduction under 80TTA?
NRIs can open NRE and NRO accounts in India. Interest earned on NRE accounts is tax-free. Hence, the 80TTA benefit is available only on the NRO savings accounts. No deduction is allowed on NRO term deposits (fixed deposits).
