80TTA Deduction: How To Save Tax on Interest Income FY 23-24

 The Income Tax Act 1961 provides taxpayers with various Chapter VIA Deductions. These amounts are deducted from the gross total income, resulting in the net total income which is the amount used for determining the tax liability. One of the useful deductions available under this Act for Taxpayers is the Section 80TTA. This deduction is available on the interest earned on Savings bank accounts.

This Section is under Chapter VIA Deductions so it cannot be claimed if the taxpayer is sticking to the default, new regime of tax slabs. This Section can only be availed if the taxpayer is filing their return on the old regime by opting out of the new regime.

Amount of Deduction

Under Section 80TTA an individual can claim an amount that is lesser of

  • ₹ 10,000 or
  • Interest earned on Savings bank account

as a deduction which shall help reduce the overall tax liability.

The entire eligible income is to be considered. This means, interest earned from savings accounts from all the accounts held by the taxpayer during the financial year.

For example

  • If the savings bank interest combined from 3 bank accounts is ₹ 15,000, the taxpayer can claim a deduction of ₹ 10,000 and essentially only ₹ 5,000 of the income shall be taxed.
  • If the savings bank interest earned is ₹ 5,000 in the financial year, then the taxpayer can claim a deduction of the full ₹ 5,000 leading to no tax on the interest income.

Eligibility of Deduction under Section 80TTA

Interest earned from savings bank accounts is taxable under the head ‘Income from Other Sources.’ To be eligible for this deduction, interest is to be earned in the following:

  • Savings account in a Bank, or
  • Savings account in a Cooperative society that is carrying on the business of Banking, or
  • Savings account in a post office.

Type of Interest not eligible for Section 80TTA deduction

Only interest from savings accounts is eligible for deduction. If interest is earned under the following cases, Section 80TTA cannot be availed:

  • Interest from Fixed Deposits.
  • Interest from Recurring Deposits.
  • Interest from Time deposits ie those deposits that are repayable upon the expiry of a fixed period.
  • Interest on debentures.
  • Interest from Provident Fund.
  • Interest on corporate bonds.
  • Interest from loans given during the course of business.

Other Points

  • Interest earned from all eligible savings accounts is to be totalled and then compared to ₹ 10,000 to determine the deduction amount.
  • This section can be availed by Non-Residents as well. However, the interest earned considered for them shall only be the Interest earned from NRO (Non-Resident Ordinary) accounts. This is because interest earned in the NRE (Non-Resident External) accounts is tax-free.
  • Section 80TTA can only be claimed by Individuals and HUFs (Hindu Undivided Families)
  • The taxpayer claiming this deduction must be below the age of 60. Taxpayers 60 and above can avail the benefit of Section 80TTB instead.
  • If an individual or HUF is holding an eligible savings bank account on behalf of a firm, an association of persons or a body of individuals, no deduction under this Section on the interest earned on such accounts can be availed either by the individual, HUF, Firm, AOP or BOI in their respective ITRs.
  • Savings account interest is usually not reflected in Form 26AS or AIS as there is no TDS done on the earnings. So the onus is on the taxpayer to report the income and claim the deduction without fail. Under-reporting or Mis-reporting of the income has interests and penalties as consequences; it is best to avoid the same.

Calculation

ParticularsAmount (in Rs)
Income from Salary8,00,000
Less: Standard Deduction(50,000)
Income under the head Salary [A]7,50,000
Interest from savings accounts7,500
Interest from fixed deposits10,000
Income from Other Sources [B]17,500
Gross Total Income [A+B]7,67,500
Less: 80C(50,000)
Less: 80TTA (lesser of ₹ 10,000 or ₹ 7,500)(7,500)
Taxable Salary7,10,000

Standard Deduction Under Old & New Tax Regime For FY 2023-24 Click Here

FAQs

Who can claim 80TTA deduction?

Individuals and Hindu Undivided Families (HUF) are eligible to claim the deduction under Section 80TTA.

How to claim a deduction under Section 80TTA?

Deduction under Section 80TTA can be claimed while filing income tax return. First add the interest income earned from savings bank/ post office accounts with the total income under the head ‘Income from Other Sources’and then Section 80TTA deduction can be claimed.

How much interest is tax free for senior citizens?

Senior citizen cannot claim deductions under Section 80TTA as Section 80TTB is specific to senior citizens. They can claim deduction of up to Rs. 50,000 under Section 80TTB.

Is 80TTA deduction available under both regime?

No, it is only available under old regime.


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