Through this blog, we shall discuss a small but very important part of your tax savings. We are talking about Income Tax deduction under Section 80TTA of The Income Tax Act.
When you deposit money in a Savings Bank account, you earn a fixed rate of interest on the balance in your Savings account. Right! Now, the interest that you earn during a particular year becomes your income for that financial year.
There is a common query amongst people while filing their income tax returns: Whether this interest on savings account is taxable and if so to what extent ?
So, here we shall be answering all your queries related to Interest on Savings bank account.
The Government encourages people towards small savings and to deposit their money in their bank accounts. Besides,earning interest on your savings account balance,you also get to enjoy tax exemption to some extent on such interest as discussed below.
Section 80TTA of The Income Tax Act was introduced in the year 2013 and applied firstly from the financial year 2013-14. Section 80TTA provides for a deduction on interest received on deposits in a saving bank account upto a maximum of Rs.10000.
So, this section was brought into force to provide benefit to those individuals earning interest on their saving bank accounts with :
- Bank or Banking Co.
- Co-operative society
- Post office savings account.
Also,note that Tax Deducted at source or TDS Provisions do not apply to the interest received on Saving bank account.Banks are authorised to deduct tax at source i.e. TDS on Interest earned on Fixed deposit or term deposits only.
Have you ever noticed that there is no TDS on your savings account income. The TDS is on Fixed deposits/Term deposit interest only.But that does not mean you can escape tax liability on interest on savings account.
Let us discuss the key points that need to be considered while claiming this Deduction under Section 80 TTA.
Section 80TTA Deduction: Interest on Bank Savings Account
1. Deduction under Section 80TTA is available to Individuals and Hindu Undivided Family(HUF) only. So,no such deduction is available to a firm, Association of Persons(AOP), Body of Individuals(BOI), Limited Liability Partnership(LLP) or a Company assessee.
2. The deduction Under section 80TTA is allowed on Savings bank interest only.Hence,you should be clear that this deduction does not apply to interest received on Fixed Deposits/Term Deposits/Recurring Deposits.
There is a major point of confusion for the common man: Is Fixed Deposit (FD) Interest also covered Under Section 80TTA ? The answer is No. Section 80TTA does not apply to FD interest. Hence,FD interest is fully taxable.
For details on Fixed Deposit and tax on FD Interest go through our popular blog post : Fixed Deposit,FD Interest,Tax on FD -A Complete guide !
3. Total savings interest received in all the bank accounts is to be considered.So,you need to add up interest from all your bank accounts while calculating the taxable interest during a financial year.
4. It is available to a maximum amount of Rs.10000 in a financial year.If your actual interest amount is less than Rs.10000, the deduction shall be restricted to lower of Rs.10000 or actual interest received.
e.g. If your saving bank interest during a financial year is say Rs.6000 only, you can claim deduction U/s 80TTA amounting to Rs.6000 only.
5. But,if the actual interest during a financial year is higher than Rs.10000, the deduction shall be restricted to Rs.10000 only. The difference shall be taxable as Interest Income under the head “Income from Other sources”.
e.g. If interest earned is Rs.15000,you will get deduction of Rs.10000 and remaining Rs.5000 shall be taxable income.
6. Deduction U/s 80TTA is in addition to the tax deduction U/s 80C. Section 80 C allows a deduction upto a maximum of Rs.1.5 lakhs. While, Section 80TTA further reduces the taxable income of eligible assesses by Rs.10000.
7. Firstly, you have to include the Total interest income under the head “Income from Other sources” and then claim deduction Under Section 80TTA.
Important: In Budget 2018 an additional tax benefit for Senior citizens was introduced under Section 80TTB . Therefore, a senior citizen can claim a tax deduction under section 80TTB upto Rs.50000 on total interest (on saving, fixed deposit & recurring deposits) earned during a year. However, if as a senior citizen one claims this deduction he won’t be able to claim deduction under Section 80 TTA.
The tax deduction under 80TTA has been illustrated below with the help of a simple example:
Example- The details for financial year 2015-16 of Mr.A are as follows:
Net salary of Rs.450000
Savings bank interest of Rs.10000
Eligible savings U/s 80 C of Rs.150000
In this case, Mr.A can claim total deduction of Rs.160000 as
U/s 80 C – Rs.150000
U/s 80 TTA- Rs.10000
Tax liability of Mr.A shall be computed as
Net salary= Rs.450000
Add : Savings bank interest = Rs.10000
Total Income = Rs.460000
Less : Deduction U/s 80 C = Rs.150000
Less : Deduction U/s 80 TTA = Rs.10000
Less : Basic exemption limit = Rs.250000
Net Taxable Income = Rs.50000 only
Tax liability =10% of Rs.50000 i.e. Rs.5000 (460000-150000-10000-250000=50000)
Thus, Mr.A has further reduced his tax liability by Rs.1000 by claiming the tax deduction Under Section 80TTA.
Also,in the above example since the Total Income of Mr.A is less than Rs.5 lakhs, he can further get Tax relief Under Section 87 A of The Income Tax Act.
Although, these days some software automatically give effect to this deduction, once you add your total interest income. But, you need to make yourself aware, so that chances of missing the same are least.
So, just relax and enjoy earning your Savings bank interest. But, don’t forget to claim tax deduction Under Section 80TTA, the next time you file your Income tax return.
Feel free to share your valuable feedback in the comment section below !
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