Important Keyword: HUF, IFOS, Section 80TTA.

Section 80TTA: Deduction for Saving Account Interest

Many individuals hold savings accounts where they earn interest periodically—monthly, quarterly, or yearly. What many aren’t aware of is that this interest income is taxable under the category of ‘Income from other sources’. However, there’s a provision under the Income Tax Act, known as section 80TTA, which allows taxpayers to claim a deduction on such interest income.

Section 80TTA

Section 80TTA of the Income Tax Act offers a beneficial provision for individuals who earn interest on their savings accounts. Banks typically credit interest periodically—monthly, quarterly, or annually—according to their policies. This interest is categorized as taxable income under the “Income From Other Sources” head in your tax return.

However, the government allows taxpayers to claim a deduction on this savings interest income under Section 80TTA, up to a maximum of INR 10,000. This deduction helps reduce the taxable income, thereby lowering the overall tax liability for individuals.

Eligibility to claim deduction u/s 80TTA

Section 80TTA of the Income Tax Act allows resident individuals below 60 years and HUFs to claim deductions on their savings account interest. For those who are senior citizens (aged 60 years or more) or super senior citizens (aged 80 years or more), Section 80TTB becomes applicable for similar deductions. It’s noteworthy that non-resident Indians (NRIs) with income from NRO accounts can also claim deductions under Section 80TTA for the interest earned on such accounts. These provisions aim to ease tax liabilities for various categories of taxpayers, encouraging savings and financial prudence.

Deduction limit u/s 80TTA

Under Section 80TTA of the Income Tax Act, individuals can claim a deduction on interest earned from savings accounts. The maximum deduction allowed is up to INR 10,000 in a financial year. Here’s how it works:

If your total interest income from all savings accounts is less than INR 10,000 in a year, you can claim the entire interest amount as a deduction. This means if your cumulative interest income from savings accounts is, say, INR 8,000, you can deduct the full INR 8,000 from your taxable income.

However, if your total interest income exceeds INR 10,000 during the year, the maximum deduction you can claim under Section 80TTA is INR 10,000. For instance, if your total interest income is INR 12,000, the deductible amount under Section 80TTA will be INR 10,000. The remaining INR 2,000 will be added to your total income and taxed as per your applicable income tax slab.

Eligible interest’s u/s 80TTA

Section 80TTA of the Income Tax Act allows for deductions on certain types of interest income, but not all interest earnings qualify.

Eligible interests include:

1. Interest earned from savings accounts held with banks.
2. Interest earned from savings accounts held with cooperative societies.
3. Interest earned from savings accounts held with the Post Office.

On the other hand, the following types of interest income are not eligible for deduction under Section 80TTA:

1. Interest earned from fixed deposits (FDs).
2. Interest earned from recurring deposits (RDs).
3. Interest earned from any other types of time deposits.

To illustrate this with an example: Let’s consider Ms. Desai, a resident individual, for the financial year 2022-23. She earned INR 16,000 from interest on her Union Bank savings account, INR 24,000 from a Post Office fixed deposit, and INR 3,500 from debentures.

For tax purposes, Ms. Desai can claim a deduction under Section 80TTA only on the INR 16,000 earned from her Union Bank savings account, as it falls under the eligible category. The interest income from the Post Office fixed deposit and debentures does not qualify for this deduction.

As per the rule, Ms. Desai will be able to claim a deduction only on the interest earned from her Union Bank Savings.

How to Claim Savings Interest Deduction?

To claim the savings interest deduction while filing your income tax return (ITR), it’s crucial to follow specific steps as per the Income Tax Act. Individuals and Hindu Undivided Families (HUFs) are eligible to claim deduction under section 80TTA, provided certain conditions are met.

When you file your ITR, you need to first include the total interest earned on savings accounts under the category “Income From Other Sources.” This is considered as part of your taxable income. Next, you can claim a deduction on this interest income under section 80TTA of Chapter VI-A of the Income Tax Act.

Section 80TTA allows for a deduction of up to Rs. 10,000 on interest earned from savings bank accounts held with banks, cooperative societies, or post offices. This deduction is applicable for individuals and HUFs, ensuring they can reduce their taxable income by the amount of interest earned on savings up to Rs. 10,000.

It’s important to note that this deduction is applicable to interest earned on savings accounts only and not on interest from fixed deposits or recurring deposits. The taxpayer must accurately report these figures in their ITR form, choosing the appropriate form such as ITR 1, ITR 2, ITR 3, or ITR 4 based on their income sources and other applicable criteria.

Read More: Section 80TTB: Interest Deduction on Deposits for Senior Citizens

Web Stories: Section 80TTB: Interest Deduction on Deposits for Senior Citizens

Official Income Tax Return filing website: https://incometaxindia.gov.in/