Section 80TTA Of The Income Tax Act

Section 80TTA of the Income Tax Act provides a tax deduction based on the interest earned on a savings account. This benefit is widely used by taxpayers in India.

By understanding the scope and applicability of Section 80TTA, you can significantly reduce your taxable income and, thereby, your income tax liability.  

Here is everything you need to know about Section 80TTA deduction.

What Is Section 80TTA Of The Income Tax Act?

Sec 80TTA of the Income Tax Act allows a tax deduction of up to ₹10,000 for the interest income earned on a savings account. This provision applies to savings accounts maintained by a bank, co-operative society or post office.

Who Can Claim Tax Deduction Under Section 80TTA?

• Individuals and HUFs- The 80TTA deduction applies only to Individuals and HUFs(Hindu Undivided Families). Senior citizens are not eligible for deductions under Section 80TTA, as there is a separate provision under Section 80TTB for this purpose.

Individuals and HUFs must opt for the old tax regime to claim the deduction under Section 80TTA.

• Non-Resident Indians (NRIs) - NRIs can also claim a deduction under 80TTA, provided it is based on an NRO savings account.

NRIs can open two types of accounts in India: Non-Resident External(NRE) and Non-Resident Ordinary(NRO). Section 80TTA deductions apply only to interest earned from NRO accounts, whereas interest on NRE accounts is tax-exempt.

Types Of Interest Income That Qualify And Does Not Qualify For Section 80TTA Deduction

Section 80TTA Deduction Limit - How Much Can I Claim Under Section 80TTA?

The maximum deduction allowed under Section 80TTA for the interest earned on a savings account is ₹10,000 per financial year.

Important Considerations:

• Maximum Deduction Limit- If your interest income is less than ₹10,000, the entire amount qualifies for deduction. However, if your interest income exceeds ₹10,000, the maximum deduction allowed is ₹10,000.
• Multiple Savings Accounts- If you have multiple savings accounts, the total deduction you can claim under Section 80TTA Income Tax Act is capped at ₹10,000 per financial year. This means the combined interest income earned from all your savings accounts qualifies for a tax deduction only up to this limit.

When Can I Claim The Section 80TTA Deduction?

You can claim the Section 80TTA tax deduction at the time of filing your Income Tax Returns. However, the deduction under 80TTA is applicable only to taxpayers who have opted for the old tax regime.

Section 80TTA in the new tax regime is not applicable.

How To Claim Section 80TTA Deduction?

• Determine Eligibility- Confirm your eligibility for the Section 80TTA deduction and ensure that the type of interest income qualifies for the deduction.
• Calculate the Total Interest Amount- Calculate the total interest income earned on all your savings accounts maintained with a bank, co-operative society or post office. It will be considered as “Income From Other Sources”.
• Add it to the Taxable Income- Add the total interest earned to your taxable income. It can include your income from salary and other investments. It is an important step as the deduction under 80TTA is calculated on your total taxable income.
• Determine the Eligible Deduction- Determine the eligible deduction under Section 80TTA. If your interest income is less than ₹10,000, the entire amount qualifies for the deduction. For interest amounts exceeding ₹10,000, you can claim a maximum deduction of ₹10,000 only.
• File your Income Tax Returns- File your Income Tax Returns with all these amounts under the appropriate heads to determine your taxable income and income tax liability.

Note: Section 80TTA in the new tax regime is not applicable. You need to opt for the old tax regime to qualify for the deductions under Section 80TTA of the Income Tax Act.

Sample Illustration

Mr Vikash has an annual salary of ₹5,50,000 and earns ₹13,500 as interest from his bank savings account and ₹15,000 as interest from his fixed deposits. Further, his eligible deductions under Section 80C is ₹60,000. His taxable income is calculated as follows:

Other Key Points To Consider For Section 80TTA Deduction

• The tax benefit under 80TTA of the Income Tax Act is a separate deduction and does not come under the purview of Section 80C.
• No TDS (Tax Deduction at Source) is applicable to interest income earned from savings accounts maintained by individuals and HUFs.

Using Section 80C and Section 80D For Higher Tax Benefits

Section 80TTA allows a tax deduction on interest earned from savings accounts. However, many other investment options provide greater benefits, higher returns and tax savings.

Section 80C offers tax deductions for savings and investments in various platforms, such as Life Insurance, Equity-Linked Savings Schemes (ELSS), and Public Provident Fund (PPF), as well as expenses such as school tuition fees.

Section 80D provides tax deductions on health insurance premiums paid for policies covering medical expenses for yourself, including your family and parents.

Also Read: Health Insurance Tax Deductions

Reliance General Insurance offers health insurance policies online that offer extensive coverage for a wide range of medical expenses, including hospitalisation, pre- and post-hospitalisation, critical illnesses, and more.

Frequently Asked Questions About Section 80TTA Deduction

1. Can NRIs claim deductions under Section 80TTA of the Income Tax Act?

   Yes, NRIs can claim a deduction under Section 80TTA. However, it applies only to their NRO (Non-Resident Ordinary) accounts.

2. What is the purpose of Section 80TTA of the Income Tax Act?

   Section 80TTA provides a tax deduction on the interest income earned on savings accounts held with a bank, co-operative society or a post office. It provides a tax deduction benefit of up to ₹10,000 on the taxable income. Therefore, it reduces the income tax liability. It encourages taxpayers to save money, promoting financial security while offering tax relief.

3. Can I claim tax deductions on income earned from fixed deposits maintained with a bank?

   No, Section 80TTA deductions apply only to interest income earned from savings accounts maintained with a bank, co-operative society, or post office. Interest from fixed deposits does not qualify for this deduction.

4. Can I claim a ₹10,000 deduction under 80TTA for each of my savings accounts if I have multiple accounts?

   No, the Section 80TTA deduction limit of ₹10,000 applies to the total interest income earned from all your savings accounts. It cannot be calculated on each account individually.

5. Is it mandatory to disclose the total interest income that I have earned during the financial year to claim a Section 80TTA deduction?

   Yes, you must disclose the total interest income earned during the financial year to claim the Section 80TTA tax deduction. The total interest income earned should be added to your other sources of income to calculate your total taxable income.

6. What happens if I don’t report my total interest income earned on savings accounts while filing my Income Tax Returns?

   If you fail to disclose your total interest income earned from savings accounts while filing your ITR, you will be penalised for non-compliance. In addition, you will be required to pay the applicable tax along with interest.

7. Do I need to pay tax on the interest income earned on savings accounts if my annual income is below the minimum slab for income tax?

   No, you don’t have to pay tax on the interest income earned on savings accounts even if it crosses ₹10,000 if your annual income is less than the minimum slab.

8. What happens to the deduction under 80TTA if RBI changes the bank savings account interest rate?

   The deduction under 80TTA is not influenced by the savings account interest rate. It is just applied to the interest income earned on the savings account, regardless of the interest rate.

9. Can I claim a deduction under both Section 80TTA and Section 80TTB at the same time?

   No, you cannot claim a tax deduction under both Section 80TTA and Section 80TTB simultaneously. Section 80TTB allows a tax deduction for the interest income earned on savings accounts exclusively for senior citizens.

10. Can I claim a Section 80TTA deduction under the new tax regime?

    Section 80TTA deduction in the new tax regime is not applicable. It applies only to taxpayers who opt for the old tax regime.

Disclaimers:

*T&C Apply. For more details on risk factors, terms conditions, brochure, and exclusions, please read the policy wording and CIS carefully before concluding a sale.

Tax benefits: Tax benefits are subject to conditions under Section 80D of the Act and amendments thereof. The tax laws are subject to amendments/changes from time to time. Please consult your tax advisor for details.