Section 80TTA grants a deduction on savings account interest up to Rs 10,000 per annum. It applies to all individuals and HUFs other than senior citizens (those above 60). Senior citizens can instead take advantage of a bigger deduction of Rs 50,000 per annum on both savings and FD interest under Section 80TTB. Savings Account Interest above Rs 10,000 is taxable under the head ‘Income from Other Sources’ at your slab rate. Section 80TTA was introduced in the Finance Bill of 2013 and became applicable from the Financial Year of 2012-13 onwards. It applies to the current financial year (2018-19) also.
In India, the rate of interest on savings accounts was 4% initially and in 1992, it was close to 6%. From 2003 to 2011, the savings bank account earned an interest of 3.5% until Reserve Bank of India implemented the De-regulation of interest rates in Savings accounts on 25th October, 2011. After the deregulation by Reserve Bank of India, banks are free to fix their interest rates to pay their customers’ on saving account deposits. RBI also allowed the banks to pay differential interest rate, that is, if the deposit amount is less than one lakh the rate of interest could be different than the interest rates given in cases where the deposit is more than one lakh rupees.
The salient features of Section 80TTA include:
- The tax exemption from interest income in savings account is limited up to ₹10,000 per annum
- This deduction is for the savings accounts held by individuals and Hindu Undivided Family (HUF)
- A person can have multiple savings accounts with different banks. But the cumulative interest income from all those accounts together should be under ₹10,000 to get a complete exemption
- In case, the total cumulative interest earning exceeds 10,000 from savings accounts, then tax exemption could be claimed for ₹10,000 only. The additional income in this respect will be subject to income tax.
- The tax deduction under Section 80TTA is over and above the deduction of ₹ 1.5 lakhs, which is deducted under Section 80C
- No Tax Deduction at Source (TDS) for savings accounts held by individuals and HUFs
- In case the Gross Total income of an individual is below the minimum taxable income level, then 80TTA will not come into picture even though the interest income from savings bank accounts exceeds 10,000. For example, if the income for an individual for a financial year is ₹200,000 then he is exempted from paying any income tax. Now, if out of that ₹200,000 income, interest income totals ₹50,000, still it is not taxable because the entire income is beyond the scope of tax liability and the scope of applying Section 80TTA is not attained. In such cases, the individual does not need to file any tax return.
- The savings accounts that are covered under Section 80TTA are of the financial Institutions like:
- Banks – These are the banking companies that are formed as per the Banking Regulation Act of 1949. These include all banks and banking institutions that are referred to in the Section 51 of that particular Act
- Post Offices – These are the Government financial institutes as demarcated in clause (k) of the Section 2 in the Indian Post Office Act, 1898 (6 of 1898)
- Cooperative Societies – These are associations of people which are autonomous in nature and involved in carrying out business similar to banking within a community driven by common economic, social and cultural goals like a Co-operative Land Development Bank
Exclusion from 80TTA
Deposits with companies or Non-Banking Finance Companies (NBFCs) will not get the benefit of this section.
Fixed Deposits with banks will not get the benefit of this section, only savings accounts will.
Finally, Section 80TTA gives relief to the investors since they do not have to keep track of the small amounts of interest that get accrued in their savings accounts and do not need to include those for computing taxable income. This tax deduction is a breather for them to avoid any penalty of non-payment of taxes on some petty incomes. On the other hand, people having lower to middle income and who have to pay some marginal amount of tax will get the additional benefit of ₹10,000 beyond the tax deduction of ₹ 1.5 lakhs under Section 80C. This is an additional welcome benefit for them.