What Is Section 80TTA?

When you deposit money in your bank savings account, it can earn interest over time. We all may know this, right? But what you may not know is that the interest you earn is subject to taxation. Yes, a portion of the interest you earn is liable to be deducted by the government, namely the income tax department. Thus, you can only avail of the remaining amount as the interest income on savings accounts. However, the real question is whether there is any way to avoid this. 

This is where Section 80TTA of the Income Tax Act comes into play. Section 80TTA is a provision that enables you to claim a tax deduction on the interest you earn from your bank savings account. Eligible individuals can benefit from a deduction of up to Rs. 10,000 on such interest income. To learn more, scroll down. Hereunder, we provide a detailed overview of the tax deduction under Section 80TTA. 

Type of Interest Incomes Not Allowed as Deduction Under Section 80TTA

Take a look at the types of interest income that are not applicable to claim any tax deduction under Section 80TTA of the Income Tax Act:-

• Interest income on Fixed Deposits
• Interest income on Recurring Deposits
• Interest income on Corporate Bonds

Which Type of Interest Incomes Are Allowed as Deduction Under Section 80TTA?

Let’s take a look at the types of interest income that are applicable to claim a deduction under Section 80TTA:–

• Interest income on savings accounts held with banks.
• Interest income from savings accounts held with post offices.
• Interest income from savings accounts held with co-operative societies.

How to Avoid Tax on Savings Account Interest?

There are two major ways to avoid tax on savings account interest. You can opt for the one that suits you best:-

Tax-Free Savings Accounts: Save your money in a tax-advantaged account. This may include types of accounts such as a health savings account, retirement account, or public provident fund account. Choosing any of these accounts ultimately allows you to earn interest, dividends, and capital gains without incurring any tax liability.

Tax Benefit on Section 80TTA: Claim a tax deduction under Sec 80TTA of Income Tax Act. This provision enables you to claim a deduction of up to Rs 10,000 on the interest income earned in your savings accounts held with banks, cooperative societies, or post offices. It’s important to note that the 80TTA limit is not applicable to fixed deposits, recurring deposits, or any other type of saving/deposit. 

How Much Interest Income Is Tax-Free for Senior Citizens?

As a senior citizen, you are entitled to a tax deduction of up to Rs 50,000. According to Section 80TTB of the Income Tax Act, all individuals who are aged 60 years or above are eligible to claim this tax exemption. Moreover, this tax benefit is applicable to any type of deposit, including savings accounts, fixed deposits, and recurring deposits, further enriching the overall advantages.

Apart from Section 80TTB, senior citizens also enjoy a higher basic exemption limit compared to normal taxpayers. Namely, the basic exemption limit for senior citizens is Rs. 3 lakh, while for super senior citizens (aged 80 years or more), it is Rs. 5 lakh. Thus, senior citizens can earn up to Rs. 3 lakh (or Rs. 5 lakh for super senior citizens) tax-free, excluding the interest income deduction under Section 80TTB.

How to Claim Deduction Under Section 80TTA?

To claim a deduction under Section 80TTA, you can follow the steps given below:-

• Calculate Interest Income: Sum the total interest income you have earned from all savings accounts during the financial year.

• Verify Eligibility: Ensure that the interest income is from savings accounts with banks, cooperative banks, or post offices.

• Check Deduction Limit: Confirm that the total interest income does not exceed Rs. 10,000, as the deduction is limited to this amount.

• File Income Tax Return (ITR): When filing your income tax return using the ITR form, include the details of the interest income earned from your savings account and proceed to claim the deduction.

Eligibility to Claim Deduction Under Section 80TTA

All Indian citizens, including Non-Resident Indians (NRIs) and Hindu Undivided Families (HUFs), are eligible to avail of the tax benefits under Section 80TTA. However, it’s crucial to note that individuals who opt for the new tax regime under Section 115BAC are considered ineligible for this tax benefit. The new tax regime inherently offers lower tax rates compared to the previous system, and hence, restricts individuals from claiming additional tax exemptions. 

Documents Required to Claim Deduction

To claim a tax deduction under Section 80TTA of Income Tax Act, you are required to provide the following documents:-

• Bank statements
• Interest certificates
• Aadhaar card
• PAN card

Difference Between Section 80TTA and Section 80TTB

Let’s take a look at the difference between Section 80TTA and Section 80TTB:-

Exceptions Under Section 80TTA

There are some exceptions under Section 80TTA of the Income Tax Act. The types of interest income that fall under this criteria are not applicable to claim any tax deduction under the 80TTA limit. Let’s scroll down:-

• Interest on Fixed Deposit (FD): A fixed deposit is a type of investment that you can make via a Bank. It allows you to deposit a fixed amount at a fixed time, expecting to earn better interest income. The fixed time frame you can set for a fixed deposit typically ranges from 1 year to 10 years or more.

• Interest on Recurring Deposit (RD): A recurring deposit is a type of term investment. I.e., you can make an agreement with the bank to invest a fixed amount at a fixed interval, typically once a month or a week. Thus you can eventually earn decent returns as an interest on your deposit. 

• Interest on Corporate Bond: A corporate bond is a type of investment that you can make outside of the bank. In this investment, you are lending a sum of money to a company for its business needs at predetermined terms and interest rates. In return, you can receive interest income until the predetermined term concludes.

Conclusion

According to Section 80TTA of Income Tax Act, all individuals born in India can avail themselves of this tax benefit. Nevertheless, there are certain limitations and exceptions you might consider before claiming your tax deduction under Section 80TTA. Ensure, primarily, that the interest income you have earned from your savings account must be held with banks, cooperative societies, or post offices. Also, take into account that your chosen tax regime is the old tax regime, as Section 80TTA is not applicable to those who choose a new tax regime. However, eligible individuals can be exempt from paying taxes on their hard-earned savings, capped at a maximum of Rs. 10,000, making it an ideal tool for tax optimisation.

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