In India, taxpayers can avail of various deductions to reduce their taxable income and save on taxes. One such deduction is under Section 80TTA of the Income Tax Act, which allows individuals and Hindu Undivided Families (HUFs) to claim a deduction on the interest earned from savings accounts. This deduction can help you lower your overall tax liability while encouraging savings and investments.
In this blog, we will discuss Section 80TTA, the types of interest eligible for deduction, how to claim it, and some important points to keep in mind while claiming this deduction.
What is Section 80TTA?
Section 80TTA of the Income Tax Act, 1961 offers a tax deduction on the interest earned from savings accounts with banks, post offices, and co-operative societies. The deduction under this section is available to individuals and Hindu Undivided Families (HUFs).
This provision is aimed at encouraging people to park their funds in savings accounts while offering them tax relief for the interest earned on such deposits.
Key Features of Section 80TTA
Eligible Taxpayers:
The deduction under Section 80TTA is available only to individuals and Hindu Undivided Families (HUFs).
Senior Citizens (those above 60 years of age) are not eligible for this deduction as they are covered under Section 80TTB (which provides a higher limit for interest deductions).
Types of Accounts Eligible for the Deduction:
Savings Bank Accounts: Interest earned on savings accounts maintained with banks, post offices, and co-operative societies.
Post Office Savings Accounts: Interest earned on savings accounts in post offices is also eligible for deduction.
Deduction Limit:
The maximum deduction you can claim under Section 80TTA is ₹10,000 per financial year.
This is the aggregate limit for all savings accounts combined, whether with one or multiple banks.
Interest Amount Eligible:
The interest earned from savings accounts is eligible for deduction.
Interest earned from fixed deposits, recurring deposits, or any other form of fixed-income instruments is not eligible for this deduction.
No Requirement to Submit Proof:
You are not required to submit any proof to the Income Tax Department while filing your return. However, you must ensure that the interest income is included in your total income and claim the deduction while filing your tax return.
How to Claim Deduction Under Section 80TTA
Claiming the deduction on interest under Section 80TTA is simple and can be done while filing your Income Tax Return (ITR).
Here’s a step-by-step guide:
Step 1: Calculate Total Interest Income
First, calculate the total interest earned from your savings accounts with banks, post offices, and co-operative societies during the financial year.
This will include interest on savings accounts, recurring deposits, and any other interest that accrues in savings accounts.
Step 2: Check the Deduction Limit
The total interest income from savings accounts is eligible for deduction, but only up to a maximum of ₹10,000.
If your total interest income exceeds ₹10,000, you will only be allowed to claim a maximum of ₹10,000 as a deduction. The excess interest will be taxed as per your applicable income tax slab.
Step 3: Include the Interest Income in Your ITR
You must declare the interest income from all savings accounts under the ‘Income from Other Sources’ section of your Income Tax Return (ITR).
While filing your ITR, there will be a section where you can claim deductions under Section 80TTA. Enter the amount of interest you wish to claim (up to ₹10,000).
Step 4: Submit Your ITR
Once you’ve claimed the deduction, ensure that all other required sections of your ITR are completed.
Submit the ITR before the due date.
Example of Claiming Deduction Under Section 80TTA
Let’s say you earned the following interest from your savings accounts during the financial year:
Savings Account in Bank A: ₹5,000
Savings Account in Bank B: ₹7,000
Post Office Savings Account: ₹3,000
The total interest income is ₹5,000 + ₹7,000 + ₹3,000 = ₹15,000.
Since the maximum deduction allowed under Section 80TTA is ₹10,000, you can claim a deduction of ₹10,000. The remaining interest of ₹5,000 will be taxed as per your income tax slab.
Important Points to Remember
Section 80TTA Is for Individuals and HUFs Only:
This deduction is available only for individuals and HUFs. Corporates and Firms cannot claim this benefit.
Interest from Fixed Deposits and Recurring Deposits Is Not Eligible:
Interest earned on fixed deposits or recurring deposits is not eligible for deduction under Section 80TTA. These types of income are subject to tax as per your income tax slab.
Senior Citizens Are Not Eligible:
Senior citizens (above 60 years) are eligible for a higher exemption of up to ₹50,000 under Section 80TTB. Therefore, they cannot claim deductions under Section 80TTA.
No Separate Deduction for Each Account:
The deduction is a single limit of ₹10,000 for all savings accounts combined. Whether you have one account or multiple, you can only claim a total of ₹10,000 in deductions.
Interest Earned Should Be Included in Total Income:
While claiming the deduction, ensure that the interest earned from your savings accounts is included in your total income. If it is not included, you might face issues during the assessment process.
Conclusion
Section 80TTA is a great way to reduce your taxable income if you earn interest on savings accounts. By claiming this deduction, you can save up to ₹10,000 on the interest earned from your savings accounts with banks, post offices, and co-operative societies.
While filing your Income Tax Return (ITR), ensure you calculate the total interest income accurately and claim the maximum possible deduction under this section. This simple step can significantly reduce your tax liability and help you save money.
Always consult with a tax professional if you have any doubts regarding your interest income or tax filing.
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