Did you know that the interest you earn from your savings bank account is taxable?

Many of us maintain savings accounts but are unaware that the interest received from them is taxable under the head ‘Income from Other Sources’. Fortunately, you can claim a tax deduction on this interest income up to Rs 10,000. Section 80TTA of the Income Tax Act, 1961, offers this benefit. Let’s take a closer look at the details of Section 80TTA.

Understanding Section 80TTA
Section 80TTA of the Income Tax Act, 1961 allows a deduction of up to Rs 10,000 on interest income earned from savings accounts maintained with a bank, co-operative society, or post office. However, this deduction is not available for interest earned on fixed deposits or recurring deposits.

Eligibility for Claiming 80TTA Deduction – Can NRIs Claim It?
The deduction under Section 80TTA can be claimed by Individuals and Hindu Undivided Families (HUFs).

NRIs are also eligible to claim a deduction under Section 80TTA. It is important to note that NRIs can only maintain two types of accounts in India—NRE and NRO accounts. Among these, only the interest earned from NRO savings accounts qualifies for deduction under Section 80TTA, as the interest on NRE accounts is exempt from tax.

Important Points:

• This section does not apply to senior citizens aged 60 years or above, as they are covered under Section 80TTB.
  
• Sections 80TTA and 80TTB cannot be claimed together. If both sections seem applicable, the assessee must opt for the one that provides a greater tax benefit.

Types of Interest Income Eligible for Deduction Under Section 80TTA
You can claim a deduction under Section 80TTA for interest income earned from the following sources:

• Savings accounts held with a bank
  
• Savings accounts maintained with a co-operative society engaged in banking activities
  
• Savings accounts with a post office
  

Types of Interest Income Not Eligible for Deduction Under Section 80TTA
The deduction under Section 80TTA does not apply to the following types of interest income:

• Interest earned from fixed deposits
  
• Interest earned from recurring deposits
  
• Interest income from corporate bonds and debentures
  
• Interest earned from provident fund deposits
  
• Interest earned through a lending business
  

Maximum Deduction Permitted Under Section 80TTA
The highest deduction limit under Section 80TTA is Rs 10,000.

• If your total eligible interest income is less than Rs 10,000, you can claim a deduction for the full amount.
  
• If your eligible interest income exceeds Rs 10,000, the deduction will be restricted to Rs 10,000.
  (Note: You must aggregate your interest income across all savings accounts if you have more than one.)
  

How to Claim Deduction Under Section 80TTA
To claim the deduction:

• Include your total savings account interest income under the head ‘Income from Other Sources’ while filing your tax return.
  
• Calculate your gross total income from all heads of income.
  
• Claim the deduction under Section 80TTA as part of the Chapter VI-A deductions.
  

Important:
The Section 80TTA deduction is available only if you opt for the old tax regime, as the new regime is now the default choice.

Example:
Suppose Mr. A, aged 35, has the following income details for a financial year:

• Salary income: Rs 5,00,000
  
• Interest on savings account: Rs 5,000
  
• Interest on fixed deposits: Rs 15,000
  
• Eligible deduction under Section 80C: Rs 10,000
  

The taxable income under the old tax regime would be calculated as follows:

Particulars	Amount (Rs)
Income from Salary	5,00,000
Less: Standard Deduction	(50,000)
Net Salary Income	4,50,000
Income from Other Sources:
– Interest on Savings Account	5,000
– Interest on Fixed Deposits	15,000
Total Other Income	20,000
Gross Total Income	4,70,000
Less: Chapter VI-A Deductions
– Section 80C	(10,000)
– Section 80TTA	(5,000)
Total Deductions	(15,000)
Taxable Income	4,55,000

Note:
Deduction under Section 80TTB is only available for senior citizens. It cannot be claimed by non-senior individuals. For more information, Contact us!

FAQ’s

Am I eligible for a tax deduction under Section 80TTA if I have a savings account in a Cooperative Society?
Yes, if you hold a savings bank account with a registered Cooperative Society, you are eligible to claim a tax deduction under Section 80TTA.

Do I need to disclose the interest earned on my savings bank account?
Yes, under the Income Tax Act, anyone required to file an income tax return must report all income earned during the financial year, including interest income, and pay any applicable taxes.

What happens if I do not report the interest income from my savings account?
If a person fails to disclose their income—whether intentionally or by mistake—they may face penalties under the Income Tax Act. They will also be required to pay any due taxes along with applicable interest if their return is selected for scrutiny.

What is the maximum deduction permitted under Section 80TTA?
The highest deduction allowed under Section 80TTA is Rs 10,000.

Can I claim a tax deduction for fixed deposit interest under Section 80TTA?
No, Section 80TTA does not permit deductions for interest earned from fixed deposits. It only applies to interest income from savings bank accounts.

How do I claim a deduction under Section 80TTA?
To claim the deduction, include the interest earned under the head ‘Income from Other Sources’ when filing your income tax return. Then, claim the deduction under Section 80TTA as part of Chapter VI-A deductions.

Is Section 80TTA deduction available under the new tax regime?
No, the deduction under Section 80TTA is only available if you opt for the old tax regime. Under the new tax regime, such deductions are not permitted.

Are senior citizens eligible for deduction under Section 80TTA?
No, senior citizens (aged 60 years or above) are eligible for a higher deduction under Section 80TTB instead of Section 80TTA.

Can I claim Section 80TTA deduction for multiple savings accounts?
Yes, you can aggregate the interest earned from all your savings accounts, but the total deduction cannot exceed Rs 10,000.

Is interest earned on a post office savings account eligible under Section 80TTA?
Yes, interest earned from a post office savings account also qualifies for deduction under Section 80TTA.

If my total interest is less than Rs 10,000, how much deduction can I claim?
If your total eligible interest income is less than Rs 10,000, you can claim a deduction for the full amount.

Can Non-Resident Indians (NRIs) claim deduction under Section 80TTA?
Yes, NRIs can claim a deduction under Section 80TTA, but only for interest earned on their NRO savings accounts. Interest on NRE accounts is already tax-free and does not qualify for this deduction.