Your Savings Bank Interest is Taxable! Learn How to Save with Section 80TTA

Many of us enjoy the convenience of a savings bank account, but did you know that the interest earned on your savings is taxable? Under the Income Tax Act, this interest falls under the category of ‘Income from Other Sources.’ However, you can breathe a sigh of relief! Section 80TTA of the Income Tax Act, 1961, offers a way to reduce your tax burden by allowing a deduction of up to Rs. 10,000 on savings account interest. In this blog, we’ll explore how Section 80TTA works and how you can benefit from it, especially if you’re looking to save on taxes while maximizing the interest you earn on your savings.

What is Section 80TTA?

Section 80TTA provides a deduction on the interest earned from savings accounts in banks, co-operative societies, or post offices. You can claim up to Rs. 10,000 as a deduction under this section, reducing your taxable income. It’s important to note that interest under Section 80TTA only applies to savings accounts and not to fixed deposits or recurring deposits.

Who Can Claim a Deduction Under Section 80TTA?

The 80TTA deduction is available to individuals and Hindu Undivided Families (HUFs). Even NRIs (Non-Resident Indians) can claim this deduction, provided they hold an NRO (Non-Resident Ordinary) savings account. Interest earned on NRE (Non-Resident External) accounts is tax-free, so it does not qualify for the deduction.

However, if you're a senior citizen (aged 60 or above), you should look into Section 80TTB, which allows a higher deduction specifically for seniors.

Which Types of Interest Income Qualify for Deduction Under Section 80TTA?

You can claim a deduction under Section 80TTA for interest income earned from:

• A savings account with a bank
• A savings account with a co-operative society involved in banking
• A savings account with a post office

However, keep in mind that interest from fixed deposits, recurring deposits, corporate bonds, debentures, provident fund deposits, or lending businesses is not eligible for deduction under Section 80TTA.

Maximum Deduction Allowed Under Section 80TTA

The maximum deduction allowed under Section 80TTA is Rs. 10,000. This means if your total interest income from all eligible savings accounts is below Rs. 10,000, the entire amount is deductible. If your interest income exceeds Rs. 10,000, the deduction is capped at Rs. 10,000.

For example, if your total savings account interest from multiple banks adds up to Rs. 8,000, you can deduct the entire Rs. 8,000 from your taxable income. However, if your savings account interest totals Rs. 12,000, your deduction will still be limited to Rs. 10,000.

How to Claim Deduction Under Section 80TTA?

Here’s how to claim your 80TTA deduction:

1. First, include the total interest income from savings accounts under the head ‘Income from Other Sources’ in your tax return.
2. Then, compute your gross total income for the financial year.
3. Finally, claim the deduction under Section 80TTA when calculating your taxable income.

It's important to note that Section 80TTA is available only if you opt for the old tax regime. The new tax regime does not allow such deductions.

Example: Tax Calculation Under Section 80TTA

Let’s consider a simple example to understand the impact of Section 80TTA on your taxable income:

• Income from Salary: Rs. 5,00,000
• Interest from Savings Account: Rs. 5,000
• Interest from Fixed Deposit: Rs. 15,000
• Eligible Deduction under Section 80C: Rs. 10,000

Here’s the tax calculation for Mr. A:

In this case, Mr. A can claim a Rs. 5000 deduction under Section 80TTA as his savings account interest is below the Rs. 10,000 limit.

In conclusion, if you're looking to reduce your taxable income, Section 80TTA offers a simple and effective way to save on taxes while still earning interest on your savings. Be sure to take advantage of this deduction if you're under the old tax regime. For NRIs, remember that only NRO accounts qualify for this benefit, while NRE account interest remains tax-free. At TaxSpanner, we simplify your tax filing process, guaranteeing that you make the most of all available deductions, including those under Section 80TTA. Stay compliant, save on taxes, and make smarter financial decisions with our expert guidance.