Section 80TTA of the Income Tax Act 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 years). 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. Read on to know more about section 80TTA of income tax act including its features, deduction limit, exclusions and more.
Features of Section 80TTA
Given below are the key features of Section 80TTA of the Income Tax Act:
- 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) only
- 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 lakh, 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 including:
- 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 or a Co-operative Land Mortgage Bank.
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Deduction Limit Under Section 80TTA
The maximum deduction allowed under Section 80TTA is Rs. 10,000. In case your savings bank interest income is less than Rs. 10,000, the entire interest income will be your deduction. If your interest income is more than Rs.10,000, your deduction will be limited to Rs. 10,000. Do keep in mind that you need to consider your total interest income from all banks, co-operative societies and post offices where you have accounts.
Section 80TTA Exclusions
- Deposits with companies or Non-Banking Financial Companies (NBFCs) will not get the benefit of this section
- Interest income from any kind of time deposits, that is deposist repayable on expiry of fixed periods including fixed deposits, recurring deposits and any other time deposits, is not allowed as deduction under Section 80TTA
- Interest income from savings accounts held by or on behalf of a firm, an association of persons or a body of individuals, no deduction will be permitted under this section in respect of such income when calculating the total income of any partner of the firm/any member of the association/any individual of the body
Thus, Section 80TTA gives relief to the investors since they do not have to keep track of the small amounts of interest that gets 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 lakh under Section 80C.
Q1. Is it mandatory to disclose the interest that I earn on my savings account balance?
Ans. Yes, as per the Income Tax Act, 1961, every individual who needs to file a return, is obligated to report all the income earned during during the period for which he is filing the return and also pay the taxes as applicable.
Q2. Are there any consequences for not reporting the interest income earned on my savings account balance?
Ans. In case you fail to report the income earned on your savings account balance during a year, either intentionally or unintentionally, you shall be penalised for non compliance and would be required to pay tax along with interest when your return is picked for scrutiny.
Q3. Is section 80TTA deduction applicable for the current financial year?
Ans. Yes, it applies to the current financial year 2022-2023.
Q4. My annual income is below the minimum annual tax slab. Do I have to pay tax on the interest earned on my savings account?
Ans. No, until your annual income is below the lowest tax slab, you are not required to pay tax on the interest earned on your savings account even if it exceeds Rs. 10,000 as there is no taxable income.
Q5. Can I claim Section 80TTA deduction if I have earned income from house property or capital gains, etc.?
Ans. No, 80TTA deduction can only be claimed if you have earned interest income from your savings account.