Tax on Savings Bank Interest: Deductions Under Section 80TTA

Most of us have a savings account but most of us don't know that interest earned on a savings account is taxable. This interest from savings bank accounts is subject to taxes under the "Income from other sources” while filing income tax returns. Section 80TTA of the Income Tax Act, available under the old tax regime, offers a valuable deduction for interest earned on savings bank accounts. This section allows taxpayers to reduce their taxable income by up to ₹10,000, specifically on interest earned from savings accounts. Let's explore Section 80TTA deduction limit in detail.

Section 80TTA deduction was introduced to encourage small savings and provide relief to taxpayers earning interest income from their savings accounts. It specifically targets interest earned from savings bank accounts with banks, post offices, or cooperative societies.

Key Features of Section 80TTA

• Deduction Limit: The maximum amount allowed under Section 80TTA deduction ₹10,000. This means you can reduce your taxable income by up to ₹10,000 on the interest earned from your savings account.
• Applicability: This 80TTA deduction is available only for interest income earned from savings bank accounts. It does not apply to interest earned from fixed deposits, recurring deposits, or other types of investments.
• Eligibility: Any individual taxpayer is eligible to claim this deduction, regardless of age. However, it's important to note that 80TTA deduction is not available to Non-Resident Indians (NRIs).
• Old Tax Regime: Section 80TTA is a part of the old tax regime. If you opt for the new tax regime, you cannot claim 80TTA deduction.

The 80TTA deduction is specifically for interest income earned from savings bank accounts held with:

• Banks
• Post offices
• Cooperative societies that provide banking services

Interest income not eligible for the Section 80TTA deduction includes:

• Interest from fixed deposits (FDs)
• Interest from recurring deposits (RDs)
• Interest from any other term deposits
• Interest from deposits with Non-Banking Financial Companies (NBFCs)
• Interest earned from corporate debentures and bonds

How to Claim Section 80TTA Deduction

To claim the section 80TTA deduction, you need to include the interest income earned from your savings account in your income tax return under the heading "Income from Other Sources." Reporting savings bank interest correctly on your Income Tax Return (ITR) is crucial. This interest is taxed under "Income from Other Sources." Remember the exemption limits: ₹10,000 for individuals and HUFs (under Section 80TTA deduction) and ₹50,000 for senior citizens (under Section 80 TTB).

Here's how to report it:

• Gather Bank Statements: Collect all your bank statements for the financial year to determine the total interest earned.
• Choose the Correct ITR Form: Select the appropriate ITR form (usually ITR-1 or ITR-2 for individuals).
• Report Interest Income: In the "Income from Other Sources" section, declare the total interest income earned.
• Claim Exemption (if applicable): If your interest income is within the exemption limit (₹10,000 or ₹50,000), claim the appropriate deduction (under Section 80TTA or 80TTB).
• Complete Other Sections: Fill out the remaining sections of the ITR, including details of other income, deductions, and tax payments.
• Review and Submit: Double-check all entries for accuracy before submitting your ITR online.

Important Points to Remember

• Deduction Limit: The maximum section 80TTA deduction you can claim under Section 80TTA is ₹10,000, even if your total interest income exceeds this amount.
• Savings Account Interest: This 80TTA deduction is specifically for interest earned from savings bank accounts. Interest from other types of deposits or investments is not eligible.
• Old Tax Regime: If you choose the new tax regime, you cannot claim 80TTA deduction.
• No Upper Age Limit: There is no upper age limit to claim 80TTA deduction. Any individual taxpayer can claim it.

Benefits of Section 80TTA deduction

• Reduced Taxable Income: By claiming 80TTA deduction, you can reduce your taxable income, which ultimately leads to lower tax liability.
• Encourages Savings: This section incentivizes individuals to save money in savings bank accounts.
• Simple and Easy: Claiming 80TTA deduction is relatively simple and straightforward.

In conclusion, Section 80TTA is a beneficial provision under the old tax regime that allows taxpayers to reduce their tax burden on interest income earned from savings bank accounts. By understanding the eligibility criteria and deduction limit, you can make the most of this provision and save on your taxes.