Section 80TTA of Income Tax Act

This provision encourages savings and financial inclusion, benefiting taxpayers by reducing their tax liability while fostering a savings culture. Since its inception, Section 80TTA has remained relevant in the tax landscape, serving its intended purpose of incentivizing savings and responsible financial behavior.

Who Can Claim 80TTA Deduction?

The Section 80TTA deduction is open to:

1. Individuals
2. Hindu Undivided Families (HUFs)
3. Non-Resident Indians (NRIs) can also benefit from the Section 80TTA deduction. However, there's a key consideration: NRIs are permitted to maintain two types of accounts in India: NRE (Non-Residential External) and NRO (Non-Residential Ordinary) accounts. Only holders of NRO savings accounts are eligible to claim the deduction under Section 80TTA. Interest earned on NRE accounts is exempt from tax.

1. Individuals aged 60 years or above (senior citizens) are subject to a distinct provision, namely Section 80TTB. This differs from the applicability of Section 80TTA for others.

Deduction under Section 80TTA

Section 80TTA is titled as 'Deduction in respect of interest on deposits in savings account' in the Income Tax Act.

Here are the salient features of this section:

1. You can claim exemption on up to Rs. 10,000 received as interest on your savings account deposits.
2. The savings account can be held in any of the following financial institution:
3. Bank
4. Cooperative society
5. Post office
6. You can claim exemption on any number of savings accounts as long as the total amount you are seeking exemption on is less than Rs. 10,000.

Exceptions under Section 80TTA

Section 80TTA of the Income Tax Act, 1961 in India restricts certain types of interest incomes from being eligible for deduction. The following interest incomes are not allowed as deductions under Section 80TTA:

1. Fixed Deposit (FD) Interest: Interest earned from fixed deposits, including bank fixed deposits and corporate fixed deposits, is not eligible for deduction. Fixed deposits involve depositing a lump sum amount with a financial institution for a predetermined period, and interest is earned on this amount.
2. Recurring Deposit (RD) Interest: Interest earned on recurring deposits, a type of savings scheme where individuals deposit a fixed sum at regular intervals, is not eligible for deduction under Section 80TTA. The interest accumulates on the deposits made over time.

1. Corporate Bond Interest: Interest earned on corporate bonds, debentures, and other interest-bearing securities issued by companies is not eligible for deduction under this section. Corporate bonds are debt instruments issued by corporations to raise capital.

Maximum Deduction Permitted under Section 80TTA

The maximum deduction allowable is capped at Rs.10,000. Here's how the deduction calculation works:

If your interest income is below Rs.10,000, the entire interest income becomes your deduction.

If your interest income surpasses Rs.10,000, your deduction will be capped at Rs.10,000. (Remember to account for your total interest income from all banks if you possess multiple accounts.)

How to Apply for Deduction Under Section 80TTA

To claim a deduction under Section 80TTA of the Income Tax Act, 1961 in India, for the interest income earned from savings accounts and cooperative societies, follow these steps:

1. Determine Eligibility: Confirm that you are an individual or a Hindu Undivided Family (HUF). This deduction is not available to non-individual taxpayers such as companies, partnerships, or LLPs.
2.  Calculate Interest Income: Calculate the total interest income earned from savings accounts and cooperative societies during the financial year. This includes interest earned on deposits in savings accounts with banks, cooperative societies, or post offices, as well as interest earned on deposits with cooperative societies engaged in banking business.
3. Determine Deduction Amount: The deduction under Section 80TTA is allowed up to a maximum of Rs.10,000. If your total interest income is less than or equal to Rs.10,000, you can claim the entire amount as a deduction. If your interest income exceeds Rs.10,000, you can claim a deduction of Rs.10,000 only.  

1. Include in Total Income: Add the interest income to your total income while computing your tax liability. This is necessary as the deduction under Section 80TTA is claimed from the total income.
2. File Income Tax Return: When filing your income tax return, report the interest income under the appropriate head (such as ‘Income from Other Sources’) and claim the deduction under Section 80TTA. Ensure that you provide accurate details and supporting documents if required.
3. Maintain Documentation: Retain the necessary documents, such as bank statements or passbook entries, to substantiate the interest income and claim made under Section 80TTA. These documents may be required for audit or verification purposes by the tax authorities.

Important Note: It's essential to be aware that you cannot avail of the Section 80TTA deduction if you opt for the new tax regime outlined in Section 115BAC.

Exceptions under Section 80TTA

Section 80TTA can be applied only in case of savings accounts and not on term deposits, fixed deposits or recurring deposits.

Interest Changes in Banking

Earlier, the Reserve Bank of India (RBI) had set the savings account interest rate at 4%. Also, the interest was given by banks based on the minimum balance in a quarter. However, now the RBI allows banks to fix higher interest rates if they wish to, and many banks are offering 6% interest on savings accounts. Banks now calculate interest based on the daily balance and not on the minimum balance.

This means that you are likely to be getting higher interest amounts per quarter than earlier. Checking your bank statement every month will help you keep a tab on this.

If your savings accounts are generating interest amounts higher than Rs. 10,000 in a financial year, you will be able to claim deduction only up to Rs. 10,000. The remaining interest amount you received will be added to your total income and income tax charged on it.