Income Tax Taxation

Deduction on Savings Accounts Deposits under Section 80 TTA of the Income Tax Act: A Complete Assessment

Section 80TTA of the Income Tax Act provides the privilege to claim deductions on savings accounts deposits that are held in a bank, post office, or co-operative society. The exemption amount sought should be less than Rs. 10,000. The interest received on the savings account is taxable. But the Government, in order to encourage its citizens to make small savings, offers tax benefits on a savings account as well. Tax deduction under Section 80TTA is available for individuals as well as Hindu Undivided Family (HUF), except for senior citizens. Savings Account Interest above Rs 10,000 is taxed under the heading ‘Income from Other Sources’ in the slab rate. Section 80TTA of the Income Tax Act was introduced in the Finance Bill, 2013 and became applicable from the Financial Year of 2012-13. It is relevant in the current financial year too. In this article, we take a detailed look at this tax exemption on the savings account as per Section 80TTA of the Income Tax Act, 1961.

What are the Salient Features of Section 80TTA of the Income Tax Act, 1961?

The salient features of Section 80TTA the Income Tax Act, 1961 are listed below:

• The tax exemption on savings account deposit interest is limited up to Rs, 10,000 per annum.
• This tax deduction is available for the savings account held by individuals and Hindu Undivided Family (HUF).
• A taxpayer can have multiple savings accounts with different banks. But the collective interest received from all those accounts together should be under Rs.10,000 to obtain a complete exemption.
• If, in case the total cumulative interest earning from savings account interest exceeds the amount of Rs. 10,000 the tax exemption that can be claimed is Rs. 10,000 only. The additional income received as interest will be subjected to income tax.
• No Tax Deduction at Source (TDS) is available for savings account held by individuals and HUFs.
• If the Gross total income of a person is below the minimum taxable income level, then section 80TTA of the Income Tax Act will not be applied even though the interest income from the savings banks account exceeds Rs. 10,000. For instance, if the income of a person for a financial year is Rs. 2, 00,000, the interest income is Rs. 50,000, still it does not taxable because the total income is beyond the scope is a tax liability, and hence the Section 80TTA does not apply here. In this type of circumstances, the individual need not file any tax return.

Where to Open Savings Accounts to Get Benefit Under Section 80TTA of the Income Tax Act?

The savings accounts that are covered under Section 80TTA of the Income Tax Account are of the financial Institutions like:

Banks

The banking companies which are formed as per the Banking Regulation Act of 1949. All banking institutions, as well as banks that are referred to in Section 51 of the Banking Regulation Act, are included as banks for the purpose of Section 80TTA.

 Post Offices

Government Financial Institutes defined in Section 2 (k) of the Indian Post Office Act 1898 (6 of 1898)

Co-operative Societies

These are associations of people who are independent in nature and are involved in carrying out a business which is similar to banking. Co-operative societies are run by a community having common social, cultural and economic goals identical to a Co-operative Land Development Bank.

How to claim deduction under Section 80TTA of the Income Tax Act?

First, add the total interest income under the heading “Income from Other Sources” in the Income Tax Returns form while filing the Income-tax returns. Write the amount of deduction in the respective column as prescribed under Section 80TTA. By following these simple steps, a person can avail deductions under Section 80TTA of the Income Tax Act, 1961.

What is the Maximum Amount of Deduction Provided in Section 80TTA of the Income Tax Act?

The maximum deduction amount is limited to Rs 10,000. In case your savings account interest income is less than Rs 10,000, the entire interest income will be deducted. And if your interest income is more than Rs 10,000, the deduction amount will be limited at Rs. 10,000 all to be considered together.

What are the Exceptions under Section 80TTA of the Income Tax Act?

The deductions that are permitted under Section 80TTA of the Income Tax Act will not be allowed for the interest earned on the amount of fixed deposits, and it is taxable according to the standard slab rates as indicated in the Union Budget by the Government. The tax deducted at source or TDS applies only if the interest earned exceeds Rs. 10,000 per annum. The deduction done for any income amount received through the fixed deposits is not permitted in the same way.

The deduction prescribed under section 80TTA cannot be claimed against any interest amount earned from the recurring deposits.

Individuals and HUF can claim deductions under section 80TTA. However, firms, corporates, artificial juridical person, an association of persons, the body of individuals either foreign-based or domestic are not allowed a deduction under section 80TTA.

What is the Difference Between Interest on Savings Account and Fixed Deposit?

Under a Fixed Deposit account, the depositor is expected to deposit the amount with the bank for a fixed period. In contrast, in a savings account, the deposited amount can be withdrawal at any time from the bank. As the amount deposited in a fixed deposit is for a fixed period, it pays a higher rate of interest as compared to the interest given on savings account.

However no deduction is given on the interest earned from a fixed deposit account, and it is taxable as per the income tax slab rates. Furthermore, a TDS amount of 10 Percent is also deducted on the fixed deposit interest amount, in case the interest earned is more than Rs. 10,000.

Whereas, a deduction of Rs. 10,000 is provided for interest on the savings account. Moreover, no deduction TDS deduction is made on this amount. The income which is earned from interest, whether it be a savings account or a fixed deposit account is disclosed under the head –income from other sources.

Though a deduction is allowed up to the amount of Rs. Ten thousand on the interest on savings account and not on fixed deposit accounts. Still, it is advisable to open fixed deposit accounts as it will provide a higher rate of interest.

PPF account is also suggested as a better investment option for someone interested in investing in tax-free fixed income-earning investments.

Interest Changes in Banking

Prior, the Reserve Bank of India (RBI) had set the interest rate for savings account at 4% per annum. Additionally, the interest given by banks was based on the minimum balance in the quarter. In any case, presently the RBI permits banks to fix a higher rate of interests if they wish to and banks are offering interests as high as 6%. Banks now calculates the amount of interest-based on the daily balance and not on the minimum balance in the account. This means that the banks will give you a higher rate of interest. By checking your bank statement every month, you can keep a tab on this.

Conclusion

Section 80TTA of the Income Tax Act gives relief to the investors because they do not have to keep track of the small amounts of interest that get accrued in their savings deposit accounts and so they need not include those while computing taxable income. This tax deduction is a relief for them to avoid any penalty for non-payment of taxes on some small incomes. On the other hand, people who have lower to middle income and who have to pay some marginal amount of tax will also get an additional benefit of Rs.10,000 beyond the tax deduction of Rs.1.5 lakhs under Section 80C. This is an extra benefit provided to the taxpayers.