Section 80TTA of Income Tax Act – All about Claiming Deduction on Interest

Interest earned from a savings account is taxable under the head "Income from Other Sources" in India. However, taxpayers can reduce their tax liability by claiming a deduction under Section 80TTA of Income Tax Act, 1961. This provision allows eligible individuals and HUFs to claim a tax deduction of up to ₹10,000 on interest earned from savings accounts held with banks, post offices, and eligible co-operative societies.

What’s more, this deduction is not limited to Indian residents alone. Non-Resident Indians (NRIs) can also claim tax benefits under Section 80TTA, provided they meet the eligibility conditions.

Want to know what those conditions are and how Section 80TTA works? You’re on the right page. Read on to get all your answers.

What Is Section 80TTA of the Income Tax Act?

Section 80TTA of the Income Tax Act, 1961 allows individuals and Hindu Undivided Families (HUFs) to claim a tax deduction of up to ₹10,000 on interest earned from savings accounts held with banks, post offices, and eligible co-operative societies. The provision aims to encourage savings and reduce the tax burden on small interest income.

Under Section 80TTA, individuals and HUFs can claim a maximum deduction of INR 10,000 on interest earned from savings accounts held with:

• Banks
• Post offices
• Co-operative societies engaged in the banking business

However, no deduction is available on interest earned from:

• Fixed deposits (FDs)
• Recurring deposits (RDs)
• Time deposits

Who Can Claim Tax Benefits Under Section 80TTA?

The following taxpayers are eligible to claim deductions under Section 80TTA of the Income Tax Act:

• Indian residents
• Hindu Undivided Families (HUFs)
• Non-Resident Indians (NRIs)

Section 80TTA for NRIs

NRIs can claim 80TTA deduction only on interest earned from NRO savings accounts.

• Interest on NRE savings accounts is entirely tax-free, so no deduction is required.
• Interest earned on NRO savings accounts is taxable, and hence eligible for deduction under Section 80TTA.

Important Note on Senior Citizens

Senior citizens (aged 60 years or above) cannot claim deductions under Section 80TTA. Instead, they can claim tax benefits under Section 80TTB, which offers a higher deduction of up to ₹50,000 on eligible interest income. Therefore, a taxpayer can claim either Section 80TTA or Section 80TTB, based on eligibility.

Features of Section 80TTA

These are the following features of section 80TTA of the Income Tax Act:

• Exemption Limit: Under section 80TTA of the Income Tax Act, you can claim up to INR 10,000 tax benefits on earned interest from a savings account in a financial year.
• Eligibility: The tax benefit under this section is available only to individuals (Indian residents and NRIs) and HUFs with savings accounts in India.
• No TDS: On savings accounts held by HUFs and individuals, no tax deduction at source (TDS) is charged on interest income.
• Multiple Accounts: Across different banks, if you have several bank accounts, the total earned interest from them should not exceed INR 10,000. If the amount exceeds that, apart from the exempt amount under section 80TTA, tax will be charged on the remaining income.
• Additional Deduction: The deduction under section 80TTA is not included in the INR 1,50,000 deduction available under section 80C of the Income Tax Act.
• Minimum Taxable Income: If an individual's gross total income is below the tax exemption limit, section 80TTA does not apply to them, even if their savings account income exceeds INR 10,000 in a financial year.

These are some key features of Section 80TTA of the Income Tax Act, 1961. Moving further, let's know the different types of interest income allowed for claim tax deduction under this section.

Interest Income Types Allowed Under Section 80TTA

The following types of interest income are eligible for deduction under Section 80TTA:

• Savings Account Interest
  Interest earned from savings accounts held with banks or post offices.
• Co-operative Society Savings Interest
  Interest earned from deposits with co-operative societies engaged in banking activities.

⚠️ The deduction limit of INR 10,000 applies per individual or HUF, not per account.

Interest Income Types Not Allowed Under Section 80TTA

The following interest incomes do not qualify for deduction under Section 80TTA:

• Fixed Deposit (FD) Interest
• Recurring Deposit (RD) Interest
• Corporate Bond & Debenture Interest
• Interest from Lending Business
• Provident Fund Interest

Maximum Tax Deduction Allowed Under Section 80TTA

Under section 80TTA of the Income Tax Act, 1961, you can claim an INR 10,000 tax deduction on your earned interest from your savings account. If the interest is less than or up to INR 10,000 in an accounting year, it is completely exempted from tax. However, if the interest earned on a savings account exceeds INR 10,000 in a fiscal year, then, apart from the exempted tax amount (INR 10,000) on the additional interest, tax will be charged.

According to the information provided, under section 80TTA, you can claim up to INR 10,000 in tax deduction on your interest earned from a savings account. Moving ahead, let's know how you can claim tax benefits under this section.

How to Claim Tax Deduction Under Section 80TTA?

Follow the steps mentioned below to claim tax deduction under section 80TTA on your earned interest from your savings account in India:

• Determine Eligibility: Before applying for a tax deduction under section 80TTA of the Income Tax Act, first check whether you are eligible to claim a deduction or not. Furthermore, this tax deduction does not apply to non-individual taxpayers, such as partnerships, LLPs, or companies.
• Calculate Interest Income: Calculate your gross interest income during a financial year earned from cooperative societies and savings accounts. Here, the interest earned on deposits includes post offices, banks, and cooperative societies engaged in the banking business.
• Estimate Deduction Amount: As mentioned, the total tax exempt under section 80TTA is INR 10,000 in an accounting year on interest earned from a savings account. Determine your deduction amount and whether it is more or less than the exempted amount.
• Include in Total Income: While calculating your tax liability, add your earned interest to your total income. This is vital, as tax deduction is claimed under section 80TTA from the total revenue.
• File Income Tax Return: While filing your Income Tax Return (ITR), under the head "Income from Other Sources," do not forget to mention your interest income and, under section 80TTA, claim tax deduction. Ensure that all the details on it are correct and that it includes all required documents.

Example for Better Understanding

Mr. D (Age: 35) earns:

• Salary income: INR 5,00,000
• Savings account interest: INR 5,000
• Fixed deposit interest: INR 15,000

So, Mr. D's taxable income is INR 4,55,000 after claiming tax benefits under sections 80TTA and 80C of the Income Tax Act.

*Note: Section 80TTA of the Income Tax Act, 1961, is only applicable under the old tax regime. So, while claiming tax benefits on the earned interest from a savings account, ensure that you choose the tax regime you want.

Conclusion

For taxpayers seeking to reduce their tax burden and optimize their savings, Section 80TTA of the Income Tax Act is an essential tool. Understanding and leveraging Section 80TTA benefits, whether you are an Indian resident or NRI, can significantly improve your financial well-being and help you plan your tax strategies. Furthermore, if you want to learn more about this section or need assistance filing the ITR, contact SaveTaxs. We have a team of experts who help you with your tax planning, ITR filing, and post-ITR assistance. So, why struggle with your ITR filing when you have the solution by your side? Connect with us today and let us help you.