Section 80TTA: Deduction on Savings Account Interest

Do you ever wonder if you can claim a tax benefit on your savings account? Well, in India, most people have a savings account, whether it's me or you. However, only a few of us know that under the head of 'Income from other sources', interest received on savings account is charged, and using section 80TTA of the Income Tax Act, 1961, up to INR 10,000 received interest, you can save taxes. Additionally, it is not only applicable to Indian residents but also available for non-resident Indians (NRIs). Yes, NRIs can claim tax benefits on interest received on their savings account under section 80TTA, but for this, they need to fulfill the eligibility criteria. Want to know what it is and about the section? Then you are on the right page. Read on the blog and get your answers.

What Is Section 80TTA of the Income Tax Act?

Often, many people get confused about section 80TTA of the Income Tax Act, and further, it affects their tax liability. In simple words, it is a tax provision that provides tax relief to people who are paying tax on their interest received from savings accounts. The section aims to introduce savings among the public. In addition, provides guidelines for claiming tax deductions associated with interest income. Under section 80TTA, you can claim up to INR 10,000 tax benefit on the earned income from interest on your savings account made in a post office, bank, or co-operative society. However, there is no tax deduction for earned interest from fixed deposit accounts or recurring deposits.

This was all about section 80TTA of the Income Tax Act, 1961. Moving ahead, let's know who is eligible to claim tax benefits under this section.

Who Can Claim Tax Benefit Under Section 80TTA?

Indian residents and Hindu Undivided Families (HUFs) can claim a tax deduction on interest received from a savings account and post office accounts under section 80TTA. Additionally, as mentioned above, non-resident Indians (NRIs) can also claim tax deduction under this section. However, to claim the tax benefits, NRIs need to have NRE (Non-Residential External) and NRO (Non-Residential Ordinary) Accounts in India. Here, the NRIs who have an NRO savings account can claim tax deduction under section 80TTA, while interest earned on NRE accounts is completely tax-free.

Furthermore, senior citizens (who are 60 or above) cannot claim a tax deduction under section 80TTA. For them, section 80TTB is made. Here, both sections 80TTA and 80TTB of the Income Tax Act, 1961, are exclusive. In case an individual is eligible to apply for both sections, they can opt for the one that is more beneficial to him/her.

This is all about who can claim a tax deduction under section 80TTA of the Income Tax Act on their earned interest on a savings account. Moving ahead, let's know the features of this section.

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 only applicable to individuals (Indian residents and NRIs) and HUFs who have savings accounts in India.
• No TDS: On savings accounts held by HUFs and individuals, there is no tax deduction at source (TDS) charged on earned interest income.
• Multiple Accounts: Across different banks, if you have several bank accounts, the total earned interest from them should not be more than INR 10,000. In case the amount is more than that, then apart from the exempted amount under section 80TTA, the 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 the gross total income of an individual in India is below the tax exemption limit, then on them, section 80TTA is not applicable even if their earned income from the savings account is more than INR 10,000 in a financial year.

These are some of the 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 as Deduction Under Section 80TTA

In India, individuals (Indian residents and NRIs) and HUFs under section 80TTA of the Income Tax Act from certain sources can claim tax deduction on earned interest from their savings accounts. Here is the list of interest income types that are mentioned in the section:

• Savings Account Interest: Interest earned on savings bank accounts is stated under section 80TTA of the Income Tax Act. It involves earned interest on deposits in a savings account with a post office and a bank.
• Cooperative Society Deposit Interest: In section 80DTTA, earned interest on deposits in a cooperative society is also mentioned to claim tax deduction. However, it is only applicable if the deposits made are engaged in the banking business.

Additionally, know that the tax deduction limit mentioned under section 80TTA is applicable per HUF and individual and not as per account. So, if you have multiple savings accounts, then if your total earnings from all these accounts are more than INR 10,000 in a financial year, then apart from the exempted amount, the tax will be charged on the remaining amount.

These are the interest income types that are allowed to claim tax deduction under section 80TTA. Moving ahead, let's know the interest income types not allowed under this section.

Interest Income Types Not Allowed as Deduction Under Section 80TTA

Here is the list of types of interest incomes that are not allowed to claim tax deduction under section 80TTA:

• Fixed Deposit (FD) Interest: Interest earned on term deposits, fixed deposits, or time deposits, under section 80TTA, is not applicable to claim tax deduction. This involves interest income earned from corporate fixed deposits, bank fixed deposits, or any other fixed-income investment.
• Corporate Bond Interest: Earned interest from debentures, corporate bonds, or any other interest-bearing securities issued by firms or companies is not applicable to claim tax deduction under section 80TTA.
• Recurring Deposit (RD) Interest: Under section 80TTA of the Income Tax Act, 1961, tax deduction on earned interest on recurring deposits is not eligible to claim. Recurring deposits are a kind of savings scheme where every month, people deposit a fixed amount for a specific period, and on the accumulated deposits, they earn interest.
• Interest from Lending Business and Provident Fund Deposits: Under section 80TTA, tax deduction is not eligible for interest earned from these sources.

This was all about the types of interest income not allowed to claim tax deduction under section 80TTA. Now, let's know the maximum deduction one can claim under this section.

Maximum Tax Deduction Allowed Under Section 80TTA

Under section 80TTA of the Income Tax Act, 1961, you can claim 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 is more than INR 10,000 in a fiscal year, then apart from the exempted tax amount (INR 10,000) on the additional interest income tax will be charged.

So, according to the mentioned information, under section 80TTA, you can claim up to INR 10,000 tax deduction on your earned interest 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 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 include 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 amount exempted under section 80TTA is INR 10,000 in an accounting year on the interest earned from a savings account. So, determine your deduction amount, 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 from the total income, tax deduction is claimed under section 80TTA.
• 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 mentioned on it are correct and have all the required documents.

This is how you can claim tax deduction under section 80TTA of the Income Tax Act. Confused? Let's understand with an example.

For instance, suppose Mr. D, a 35-year-old man, has a INR 5,00,000 annual income. Additionally, he earns INR 5,000 on his savings account with a bank and INR 15,000 on fixed deposits in a fiscal year. Here, under section 80TTA, he is eligible to claim a tax deduction on his earned interest on a savings account as it is less than INR 10,000. Moving further, let's know the calculation of his taxable income under the old tax regime.

So, here is the taxable income of Mr. D 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 which tax regime you choose.

Wrapping Up

For taxpayers looking to decrease their tax burden and optimize their savings, Section 80TTA of the Income Tax Act emerges as an important 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 know more about this section and need assistance in 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.