Income Tax

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

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

A savings bank account can be considered a digital piggy bank on which interest can be earned. Almost everybody has a savings bank account, so it becomes important to understand the taxability of interest earned on the savings bank account. Interest received on the savings bank account is taxed under the head Income from other sources. Under section 80TTA, the interest deduction is allowed.

What is Section 80TTA?

The Income Tax Act 19611 allows a deduction on the interest earned on your savings bank account, cooperative society account, or post office account. The permissible amount of deduction is up to INR 10,000. Under Section 80TTA, the deduction for FD interest is not available. The deduction is allowed to all individuals and HUFs except super senior citizens aged 60 years or more. Super senior citizens are allowed a deduction under a separate section, i.e., section 80TTB. The provision was introduced in 2013 as a segment of the Finance Bill of that year, and it came into effect from the fiscal year 2012-13 onwards and still holds good.

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Who can claim Section 80TTA deduction?

Individuals and Hindu Undivided Families (HUF) can claim a deduction under section 80TTA. It can be claimed on interest received on savings bank and post office accounts.

Can NRIs claim a deduction under Section 80TTA?

Non-resident Indians (NRIs) are also eligible to claim deductions under section 80TTA, just like resident Indians. NRIs can open an NRE or NRO account in India. Interest earned on the NRE account is tax-free; therefore, the benefit under section 80TTA is available only on the NRO savings account. Deduction allowed on NRO term deposits (fixed deposits) is NIL.

Deduction Limit under section 80TTA

Under section 80TTA, a deduction of INR 10,000 is allowed on the interest received from the savings account. For a person with multiple savings accounts with different banks, the maximum deduction can be claimed for all savings accounts is INR 10,000. Deduction under section 80TTA is over and above the INR 1.5 lakh limit of Section 80C.

Types of Interest Incomes Allowed as deduction under Section 80TTA

Under section 80TTA of the Indian Income Tax Act 1961, individuals and HUFs are eligible for a deduction on interest income received from certain sources. The deduction is available for interest earned up to a maximum amount of INR 10,000. The types of interest incomed allowed as a deduction under section 80TTA are as follows:

Savings Account Interest

The deduction under section 80TTA is applicable to interest received on savings bank accounts. It is inclusive of the interest received on deposits in a savings account with a bank, cooperative society, or a post office.

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Cooperative Society Deposit Interest

Interest received on deposits in a cooperative society is also eligible for a deduction under section 80TTA. However, it applies only to deposits made with a cooperative society engaged in the banking business.

It is crucial to note that the deduction limit under section 80TTA applies to individuals or HUF and not on account. Therefore, even if you have a number of savings accounts or deposits with multiple banks or cooperative societies, the total interest income from all accounts cumulatively is considered for the deduction, subject to the maximum limit of INR 10,000.

Type of Interest Incomes Disallowed as Deduction under Section 80TTA

Under Section 80TTA, certain types of income are disallowed as deductions. The interest incomes not eligible for deduction under section 80TTA are:

Fixed Deposit (FD) Interest

Interest earned on fixed, term, or time deposits is ineligible for deduction under section 80TTA. It includes interest from bank fixed deposits, corporate fixed deposits, or any other fixed-income investment.

Recurring Deposit (RD) Interest

Interest received on recurring deposits is also ineligible for deduction under section 80TTA. Recurring deposits are a type of savings scheme in which individuals deposit a fixed amount monthly for a prescribed period, and interest is earned on the accumulated deposits.

Corporate Bond Interest

Interest received on corporate bonds, debentures, or any other interest-bearing securities issued by companies is ineligible for deduction under section 80TTA.

How do you claim a deduction under Section 80TTA?

Follow the following steps to claim a deduction under section 80TTA of the Income Tax Act 1961 for the interest income earned from savings accounts and cooperative societies:

Determine Eligibility

Establish that you’re an individual or a HUF, as this deduction is unavailable to non-individual taxpayers such as companies, LLPs, and partnerships.

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Calculate Interest Income

Compute the total interest income from savings accounts and cooperative societies during the fiscal year. It includes interest received on deposits in savings accounts with banks, cooperative societies, or post offices and interest received on deposits with cooperative societies involved in the banking business.

Determine Deduction Amount

The deduction under section 80TTA is permitted up to INR 10,000. If your total interest income is less than or equal to INR 10,000, you can claim the entire amount as a deduction. If your interest income exceeds INR 10,000, you can only claim a deduction of INR 10,000.

Include in Total Income

Add interest income to your total income while computing your tax liability. This is necessary as a deduction under section 80TTA is claimed from the total income.

File Income Tax Return

While filing an income tax return, you have to report the interest income under the “Income from Other Sources” Make sure that you provide correct details and supporting documents if required.

Maintain Documentation

Store necessary documents such as bank statements or passbook entries to substantiate the interest income and claim made. Tax authorities may require these documents for audit and verification purposes.

Conclusion

In summation, it can be said that Section 80TTA deduction is granted on interest on savings banks. The deduction is applicable for interest on savings accounts held by individuals or HUFs. The highest deduction that can be claimed for all savings accounts is INR 10,000.

FAQs

  1. Who is eligible for Section 80TTA?

    Individuals and HUF are eligible for Section 80TTA.

  2. Is everyone eligible for Section 80TTA deduction?

    No, section 80TTA deduction does not apply to companies, LLPs and partnerships.

  3. What are the eligibility criteria for section 80TTA?

    An individual or an HUF deriving income from interest on deposits in a saving account can claim a deduction under section 80TTA>

  4. Is Section 80TTA applicable only to senior citizens?

    No, for senior citizens, the deduction is applicable under section 80TTB.

  5. How much is exempted under section 80TTA?

    INR 10,000 is exempted under section 80TTA.

  6. What is the limit of section 80TTA exemption?

    The limit of section 80TTA exemption is INR 10,000.

  7. What is Section 80TTA exemption?

    Section 80TTA exemption provides a deduction of up to INR 10,000 on the income earned from interest on savings made in a bank, cooperative society or post office.

  8. Who is eligible for Section 80TTB deduction?

    Senior citizens are eligible for section 80TTB deduction.

  9. Is section 80TTA applicable if interest is more than INR 10,000?

    Yes, but if your interest income is more than INR 10,000, then the deduction shall be restricted to INR 10,000.

References

  1. https://incometaxindia.gov.in/pages/acts/income-tax-act.aspx

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