Section 80TTA of Income Tax Act – All about Claiming Deduction on Interest
Your savings bank interest is taxable!
Ever wondered how savings bank interest is taxed and whether you can save income tax on it?
Most of us have a savings bank account, but many are unaware that the interest earned from it is taxable under the head ‘Income from other sources’. However, you can save taxes on interest received up to Rs 10,000. Section 80TTA of the Income Tax Act, 1961 provides a deduction of Rs 10,000 on such interest income. Let’s explore Section 80TTA in detail.
What is Section 80TTA?
Section 80TTA of the Income Tax Act, 1961 offers a deduction of up to Rs 10,000 on income earned from interest on savings accounts in banks, co-operative societies, or post offices.
- Important: No deduction is available for interest earned from fixed deposits or recurring deposits.
Who can Claim 80TTA Deduction? Can NRIs Avail of a Deduction under 80TTA?
Section 80TTA is available to Individuals and HUF (Hindu Undivided Family).
- NRIs: Yes, Non-Resident Indians (NRIs) can also avail of this deduction. However, only NRO savings account holders can claim the benefit, as interest earned on NRE accounts is tax-free.
Note:
- This section does not apply to senior citizens aged 60 years or more. Instead, Section 80TTB applies to them.
- 80TTA and 80TTB are mutually exclusive. If both are applicable, the taxpayer can choose the most beneficial deduction.
Which Type of Interest Income is Allowed as Deduction Under Section 80TTA?
You can claim a deduction on interest income earned from the following:
- Savings accounts with a bank
- Savings accounts with a co-operative society engaged in banking
- Savings accounts with a post office
Interest Income Not Allowed as Deduction Under Section 80TTA
The following interest income is not eligible for deduction under Section 80TTA:
- Interest from fixed deposits
- Interest from recurring deposits
- Interest earned on corporate bonds and debentures
- Interest from Provident Fund deposits
- Interest from lending business
Maximum Deduction Allowed Under Section 80TTA
The maximum deduction you can claim is Rs 10,000. If your interest income is less than Rs 10,000, you can claim the entire interest amount as a deduction. If your interest income exceeds Rs 10,000, your deduction will be capped at Rs 10,000.
- Important: Total interest income from all accounts must be considered if you have multiple accounts.
How to Claim Deduction Under Section 80TTA
To claim the deduction, follow these steps:
- Add your total interest income under the head ‘Income from Other Sources’ in your return.
- Calculate your gross total income for the financial year from all income sources.
- Show the deduction under Section 80TTA while calculating Chapter VI-A deductions.
Important: Section 80TTA deduction can only be claimed if you opt for the old tax regime as the new regime is the default.
Example
Let’s understand with an example:
Mr. A (aged 35) earns a salary of Rs 5,00,000, interest on savings account of Rs 5,000, and interest from fixed deposits of Rs 15,000 in a financial year. Mr. A is also eligible for a deduction of Rs 10,000 under Section 80C. His taxable income under the old tax regime would be calculated as follows:
| Particulars | Amount (Rs) | Amount (Rs) |
|---|---|---|
| Income from Salary | 5,00,000 | |
| Less: Standard Deduction | (50,000) | |
| Net Salary | 4,50,000 | |
| Income from Other Sources | ||
| – Interest on savings | 5,000 | |
| – Interest on fixed deposits | 15,000 | |
| Total Interest Income | 20,000 | |
| Gross Total Income | 4,70,000 | |
| Less: Chapter VI-A Deduction | ||
| – Section 80C | (10,000) | |
| – Section 80TTA | (5,000) | |
| Taxable Income | 4,55,000 |
Note: Deduction under Section 80TTB cannot be claimed if the taxpayer is not a senior citizen.
