Using Section 80TTA to Claim Tax Deduction on Interest

Nowadays, banks can set relatively high interest rates for savings accounts according to updated RBI guidelines. Banks are now supposed to charge interest depending on the daily account balance rather than the minimum balance required to be maintained. As a result, savings account holders can now receive higher interest payments than in the past.

This is where Section 80TTA of the Income Tax Act comes into play. When a savings account yields interest income of more than ₹ 10,000 in a financial year, the account holder can claim a tax deduction of up to ₹ 10,000.

Brief Overview of Section 80TTA

Section 80TTA became effective from the financial year 2012–2013 and it provides a deduction on interest received from a savings account held with a bank, co-operative society, or a post office. 

Interest income is taxable as income from other sources and if you are required to file a tax return, you should disclose any interest income earned by you during the financial year. By availing the deduction under Section 80TTA, you can reduce the tax liability on the interest from your savings account or even end up paying no tax if the interest earned is less than ₹ 10,000.

The deduction under Section 80TTA is however not available for interest earned from fixed deposits. Individuals other than resident senior citizens, and HUFs are eligible for the deduction. Senior citizens who are residents of India can avail a similar deduction under Section 80TTB. 

Key Features of Section 80TTA

The deduction under Section 80TTA is available subject to the fulfilment of prescribed conditions. The conditions are listed below and all of them are required to be fulfilled for availing a deduction.

  • The deduction is available for interest income from savings accounts
  • The savings account should be maintained with a bank, co-operative society, or a post office
  • The savings account should be in the name of the person claiming the deduction
  • The person claiming the deduction must be an individual or an HUF

Eligible Interest Income

Section 80TTA permits deduction against the following types of interest income:

  • Interest from savings account held with banks
  • Interest from savings accounts held with co-operative societies engaged in banking 
  • Interest from savings accounts held with post offices

Maximum Allowable Deduction

As per Section 80TTA of the Income Tax Act, a maximum deduction of up to ₹ 10,000 can be claimed. So, if your total interest income is equal to or less than ₹ 10,000, the total amount will be deductible. It is crucial to remember that one must consider the aggregate interest income from all the banks where a person holds savings accounts.

As an example, if you earn a total interest income of ₹ 22,000 from two different savings bank accounts, you can claim a tax deduction of ₹ 10,000 under Section 80TTA. Therefore, the deduction will reduce the interest taxable in your hands to ₹ 12,000.

Disallowed Interest Income

All types of interest income are not covered under Section 80TTA. Interest from time deposits is excluded under Section 80TTA. Time deposits are defined to mean the deposits repayable on the expiry of fixed periods.

Therefore, the types of interest income that are not eligible for a deduction under Section 80TTA are:

  • Interest from recurring deposits
  • Interest from fixed deposits
  • Other time deposits

Claiming Deduction Under Section 80TTA

The process of claiming a deduction under section 80TTA for ITR-1 and ITR-2 is provided below. The actual ITR that would be applicable to you would depend on your source of income.

ITR-1

  • Enter the amount of interest earned under the heading “Income from Other Sources”
  • Select “interest from saving account” in the drop-down list
  • The deduction under Section 80TTA should be calculated automatically
  • Verify if the amount of deduction appearing under the heading “Deductions and Taxable Total Income” is correct

ITR- 2

  • Go to the “OS – Income from Other Sources” schedule of the form
  • Enter the amount of interest earned under the heading “From Savings Bank”
  • The deduction under Section 80TTA should be calculated automatically
  • Verify if the amount of deduction appearing in “Schedule VI-A” is correct

Final Words

The introduction of Section 80TTA has encouraged people to save more in low-risk options such as savings bank accounts. Prior to the introduction of 80TTA, low interest rates coupled with the tax effect made people shift money from savings bank accounts to riskier options. However, to avail the tax deduction under Section 80TTA, it is vital to know how to file a tax return properly.

Although Section 80TTA of the Income Tax Act currently permits a deduction of up to ₹ 10,000 which may be on the lower side, this limit may be considered for a revision in the upcoming Union Budget.

Frequently Asked Questions

Explain the distinction between Sections 80TTA and 80TTB.

Sections 80TTA and 80TTB offer similar deductions. However, the deduction under Section 80TTA is not available to senior citizens who are residents of India. Further, the deduction under Section 80TTB is available on both fixed deposits and savings accounts up to a limit of ₹ 50,000.

Can I claim a deduction for interest from fixed deposits?

No, you cannot claim a deduction for interest from fixed deposits. The interest would be taxable as income from other sources as per the slab rate applicable to you.

Does failing to disclose the interest earned in my savings account have any repercussions?

If you fail to disclose the income made on your savings account balance during a given year, whether deliberately or inadvertently, you will be penalised and compelled to pay tax as well as interest if your return is selected for scrutiny.

Can I claim a deduction for interest earned on the balance held in my NRO account?

Yes, you can claim a deduction for interest earned on the balance held in your NRO account. Note that interest earned on NRE accounts is exempt from tax and hence the question of a tax deduction does not arise.

Credit Principal at Wint Wealth
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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The article may also contain information which are the personal views/opinions of the authors. The information contained in this article is for general, educational and awareness purposes only and is not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision, whether related to investment or otherwise, taken on the basis of this article.

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