Introduction
Introduction: Here is the news: If you are under the impression that the interest you are saving in your bank account will yield more benefits. Interest income is taxable! We all keep savings accounts, but all interest received for the same is taxable under “Income from other sources.” Thankfully, there is a way to save tax on interest income received up to Rs 10,000. The 80TTA deduction of Income Tax Act, 1961, offers a deduction of Rs 10,000 on the interest income. Even in the latest 2024-25 Union Budget, there was no change in the 80TTA deduction.
This post explains the interest income tax you will face and, more importantly, how you might benefit from the 80TTA deduction limit. Knowing the specifics of Section 80TTA can help your financial plan regardless of your level of experience with savings. Let’s examine the details of this little-known tax advantage so you may get the most out of your savings bank interest.
What is Section 80TTA?
The 80TTA deduction is a part of the Income Tax Act 1961 that offers tax relief over the income earned through interest on a savings account. Using this tax benefit, taxpayers can deduct interest generated on these accounts from their taxable income up to INR 10,000 annually. It’s crucial to remember that interest income from recurring deposits, fixed deposits, or other kinds of time deposits is not deductible.
Who can claim an 80TTA deduction?
If you are wondering who can claim an 80TTA deduction, here are some points to remember:
Individual and Hindu Undivided Families (HUFs):
Individual taxpayers and HUFs are the only groups eligible for the 80TTA deduction. Due to this exclusion, companies, partnerships, and other organizational structures do not qualify for this deduction.
Indian Residents and NRIs
Indians, both residents and non-residents, earning interest from savings accounts can deduct this amount. The deduction only applies to non-resident accounts approved by the Foreign Exchange Management Act (FEMA), guaranteeing that non-residents can only access it via authorized financial channels.
It is important to remember that in India, NRIs can only open two kinds of accounts- NRE and NRO accounts. However, because interest received on NRE accounts is tax-free, only owners of NRO savings accounts are eligible to benefit from Section 80TTA.
What types of Interest Incomes are allowed under the 80TTA Deduction Limit?
80TTA deduction limit applies to the interest income from the below-mentioned account types:
- Savings Accounts with a Bank: This refers to any regular savings account kept with any Indian public, private, or international bank. The interest you earn is deductible from your taxes regardless of whether your account is with a large national bank or a modest regional business; what matters is that the financial institution is officially recognized.
- Savings Accounts with a Cooperative Society: You are also eligible to deduct this amount if you have a savings account with a cooperative society that conducts banking activities. To be eligible, the cooperative society must be duly registered and approved to conduct banking operations.
- Post Office Savings Account Interest: This deduction is available for interest paid on savings accounts held with any post office in India. These savings accounts in post offices are particularly well-liked in semi-urban and rural regions, providing advantages akin to those of bank savings accounts.
Which Type of Interest Income doesn’t fall under Section 80TTA’s Deduction Limit?
Below are the types of interest income that don’t qualify for the 80TTA deduction for AY 2023-2024.
- Interest from Fixed Deposits (FDs): Interest from FDs is not deductible under Section 80TTA, regardless of the deposit period or the institution holding it.
- Interest from Recurring Deposits (RDs): Similar to fixed deposits, interest from RDs, a particular kind of term deposit that banks offer, is not deducted from this amount.
- Time Deposits: Any deposit that must be repaid after a predetermined time falls into this category. It includes some deposit accounts and savings plans that mature after a specific period and are not deductible under Section 80TTA.
- Interest Received on Corporate Bonds and Debentures: With these investments, you lend money to a business in return for payments at a set interest rate. Under Section 80TTA, the interest earned on certain assets is not deductible.
- Interest from Provident Fund Deposits: This deduction does not apply to interest income from provident fund deposits, which often have higher interest rates than standard savings accounts.
- Interest from Lending Business: This deduction does not apply to any interest income derived from a lending business if the primary source of income is interest paid on loans made to private citizens or enterprises.
What is the Maximum Deduction Allowed under 80TTA?
Section 80TTA permits a maximum deduction of Rs. 10,000. If the interest income from your savings bank is less than Rs. 10,000, you can deduct the entire amount of interest. Your deduction will be restricted to Rs. 10,000 if your interest income exceeds that amount. Remember that you must account for all the interest income you receive from your accounts at banks, post offices, and cooperative societies.
The deduction allowed under Section 80TTA exceeds the 1.5 lakh threshold set by Section 80C.
The savings account may be opened with any of the following banks:
- Bank
- Cooperative Organisation
- Postal station
You can claim this exemption if the total interest amount across your savings account is less than Rs. 10,000.
What are the Steps to Claim Deduction in Interest Income under Section 80TTA?
To claim a deduction in interest income under section 80TTA, you need to follow below steps:
- Know your Eligibility: Verify if you are a Hindu Undivided Family (HUF) or an individual. LLPs, partnerships, and other non-individual taxpayers are not eligible for this deduction.
- Compute Interest Income: Determine the interest received from cooperative societies and savings accounts throughout the fiscal year. This includes interest on deposits made with post offices, banks, or cooperative societies that offer savings accounts and on deposits made with cooperative societies that run banks.
- Calculate the Deduction Amount: Under Section 80TTA, you may deduct up to Rs. 10,000 of total interest income if it is less than or equal to Rs. 10,000. However, if the amount exceeds the desired amount, you can claim Rs 10,000 only.
- Include in Total Income: When calculating your tax obligation, include the interest income in your total income. This is required since the Section 80TTA deduction is deducted from the total amount of income.
- Submit an Income Tax Return: Report interest income under the relevant heading, “Income from Other Sources,” on your income tax return and claim the Section 80TTA deduction. Make sure you include correct information and, if necessary, supporting documentation.
- Maintain Proper Documentation: Keep the records required to support the interest income and Section 80TTA claim, such as bank statements or passbook entries. The tax authorities may need these records for audit or verification purposes.
What is the difference between 80TTA and 80TTB?
For naïve taxpayers new to this, it is important to understand the difference between 80TTA and 80TTB. Below we have mentioned the difference.
| Aspects | 80TTA | 80TTB |
| Eligibility | Should fall under HUFs and NRIs can claim a deduction | No eligible for HUF individuals and NRIs |
| Age Limit | Should be under 60 years of age | Should be 60 years or above |
| Type of Interest Income | Limited to interest from savings accounts. | Allows deductions on a broader range of interest incomes, including savings, fixed, and recurring deposits. |
| Deduction Limit | The deduction limit under Section 80TTA is Rs 10,000. | The deduction limit under Section 80TTB is Rs 50,000. |
Calculation on Interest Income Deduction under 80TTA
Below is an example of how interest income deduction under 80TTA 2023-24 IT return.
| Components | Amount |
| Gross Income | Rs 15,00,000 |
| Other Deductions Under Chapter VI A
|
1,50,000
|
| Total Interest on Saving Accounts
|
60000 |
| The deduction is allowed under section 80TTA/80TTB.
|
10000 |
| Net Taxable Income After Deduction
|
13,40,000
|
Essential Features of Section 80TTA
Here are some essential features of Section 80TTA that will help you to have a better understanding:
- There is a ₹10,000 annual cap on the tax exemption from interest income in savings accounts.
- This deduction only applies to individual and Hindu Undivided Family (HUF) savings accounts.
- A person may hold numerous savings accounts at various banks. However, to receive a full exemption, the total interest income from all those accounts must be less than ₹10,000.
- If the total interest earned from savings accounts surpasses 10,000, a ₹10,000 tax exemption can be claimed. Income tax will be applied to this additional income.
- In addition to the ₹ 1.5 lakh deduction under Section 80C, there is an additional tax deduction under Section 80TTA.
Also Read : Top Income Tax Return Filing Tips for Individuals and Businesses
Conclusion
So, we have seen how taxpayers, including investors, benefit under Section 80TTA because they are relieved that they are not required to watch the tiny sums of interest that accumulate in their savings accounts and are not required to consider those in determining their taxable income.
Thanks to this tax deduction, they can avoid penalties for underpaying taxes on certain minor incomes. However, in addition to the ₹1.5 lakh tax deduction under Section 80C, individuals with lower to middle incomes who must pay a marginal tax will receive an extra benefit of ₹10,000.
However, it is essential to be knowledgeable and updated about the new and old tax regimes that cover the 80TTA deduction. This will help you save money on your interest income.
FAQs
What is 80G Deduction?
Section 80G of the Income Tax Act 1961 offers tax benefits to individuals who contribute to eligible charitable trusts or institutions. This section permits deductions on gifts made to designated funds or charities. Contributions to scientific research and rural development can be made in cash (up to Rs. 2,000), draft, or cheque, and the total amount can be claimed under Section 80GG.
How much FD interest is tax-free?
The TDS on FD is levied if the interest earned exceeds ₹40,000 in the respective financial year. The limit is ₹50,000 for senior citizens. If your interest income falls above the ₹40,000 threshold, you must submit your PAN Card details.
How do I know if my 80G is 50 or 100?
This can be a 50% or 100% deduction from the total amount provided. Contributions to specific organizations are fully deductible at 100% or 50% of the donation amount, with no upper limit. To claim the deductions under Section 80 G, one must provide information about their donations in “Schedule 80G” on the ITR form.
Can 80TTA be claimed by senior citizens?
No, senior folks are eligible to deduct up to Rs. 50,000 under section 80TTB. Seniors with term deposits and savings bank accounts may be eligible to deduct interest.
