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Section 80TTA: Deduction in Respect of Interest on Deposits in Savings Accounts
The interest earned from the savings bank account is taxable under the head ‘Income from Other Sources’. However, the entire interest income is not taxable under the income tax. A tax benefit is allowed under Section 80TTA to certain extent. Let’s take a look at Section 80TTA and the benefits associated with the said section.
Section 80TTA
Section 80TTA of the Income Tax Act, 1961 allows for a deduction of interest earned on the savings bank accounts. Only individuals below 60 years of age and Hindu Undivided Families (HUFs) are eligible to claim the deduction under Section 80TTA. The interest income earned from savings accounts are eligible for deduction in this section. Interest income from fixed deposits cannot be claimed as a deduction under the said section. Moreover, Section 80TTA allows a maximum deduction of INR 10,000.
Who can claim Deduction under Section 80TTA?
Only individuals and HUFs are allowed to claim deduction under Section 80TTA. Non-Resident Indians (NRI) having a Non-Resident Ordinary (NRO) Account in India can also claim deduction under Section 80TTA for the interest earned on the said account. Income derived by savings account held by or on behalf of a partnership firm, Association of Persons (AOP) or Body of Individuals (BOI), is not deductible under Section 80TTA for the partner or member of such AOP or BOI.
Inclusions under Section 80TTA
Interest income from the following are eligible for tax benefits under Section 80TTA:
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A financial institution to whom the Banking Regulation Act, 1949 is applicable, or.
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A co-operative society engaged in the business of banking, or
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A post office as per the Indian Post Office Act, 1898.
Exclusions from Section 80TTA
The following interest income are not eligible for deduction under Section 80TTA:
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Interest from fixed deposits
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Interest from recurring deposits
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Interest from any other time deposits
Maximum Deduction under Section 80TTA
The maximum amount of deduction allowable under Section 80TTA is INR 10,000 for the interest earned from the savings bank account. However, if the accumulated interest earned by the assessee from savings bank account is less than INR 10,000, the deduction under Section 80TTA will be restricted to such amount of interest earned. In no case, the deduction under Section 80TTA will be greater than INR 10,000.
Section 80TTA and New Tax Regime
The New Tax Regime has waived off the commonly available deductions under Section 80 or Chapter VI-A. As a result, of which, the deductions available to assessees in the Old Tax Regime becomes inapplicable in the New Tax Regime.
Likewise, the deduction under Section 80TTA cannot be availed by the assessee if he opts for the New Tax Regime. Upon shifting from the Old Tax Regime, he has to forgo certain deductions earlier available. As a result, the New Tax Regime does not allow for the deduction under Section 80TTA.
Frequently Asked Questions
Q
What is Section 80TTA of the Income Tax Act, 1961?
A
Section 80TTA of the Income Tax Act, 1961 allows for deduction of interest earned from the savings bank account by the assessee during the relevant financial year.
Q
Who can avail a deduction under Section 80TTA?
A
Deduction under Section 80TTA is allowable to the following types of assessees for interest earned from savings account in India:
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Resident Individuals
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Non-Resident Individuals having NRO Account in India
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Hindu Undivided Family (HUF)
Q
Who cannot avail a deduction under Section 80TTA?
A
Deduction under Section 80TTA is not allowable in case: where the income derived from the savings account held by the assessee on behalf of the partnership firm or Association of Persons (AOP) or Body of Individuals (BOI). Thus, a partner or a member of the partnership firm or AOP or BOI respectively maintaining the savings bank account on behalf of such a firm or entity, cannot claim deduction under Section 80TTA.
Q
Which income is eligible for deduction under Section 80TTA?
A
Section 80TTA lists the types of interest income that individuals or HUFs can claim. The following are the incomes eligible for deduction under Section 80TTA:
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Interest income from savings bank accounts held with the bank or banking institution.
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Interest income from savings accounts maintained with the co-operative society engaged in the banking business
Q
What is the maximum deduction allowed under Section 80TTA?
A
A maximum deduction of INR 10,000 can be claimed under Section 80TTA. However, if the amount of interest from a savings account is less than INR 10,000, then such an amount will be allowed as a deduction.
Q
Can a Non-Resident Indian (NRI) claim deduction under Section 80TTA?
A
Yes. An NRI can claim deduction under Section 80TTA provided a Non-Resident Ordinary (NRO) Account is maintained by him in India.
Q
Can a deduction under Section 80TTA be claimed under the New Tax Regime?
A
The New Tax Regime does not allow certain deductions under Chapter VI-A as it was allowed in the Old Tax Regime. The deduction under Section 80TTA is one such type of deduction not allowable under the New Tax Regime.
Q
Can an interest income from Fixed Deposit be claimed as a deduction under Section 80TTA?
A
The interest income earned from the fixed deposit cannot be claimed as a deduction under Section 80TTA. Only the interest from savings bank accounts can be claimed as a deduction under Section 80TTA.
Q
Can a deduction under Section 80TTA be allowed to the partner of a partnership firm maintaining a bank account on behalf of such partnership firm?
A
An individual being a partner maintaining a savings bank account in the representative capacity of the partnership firm and earning interest thereon is not allowed to claim deduction under Section 80TTA while determining his tax liability.
Q
Can a deduction under Section 80TTA be allowed to the member of an association of persons (AOP) or body of individuals (BOI) maintaining a bank account on behalf of such AOP or BOI?
A
An individual being a member of maintaining a savings bank account in the representative capacity of AOP or BOI, and earning interest thereon is not allowed to claim deduction under Section 80TTA while determining his tax liability.
Prachi Jain
Chartered Accountant
Prachi Jain is a Chartered Accountant with a passion for simplifying finance and tax-related matters through her insightful and informative blogs. With a background in finance and a deep understanding of tax regulations, Prachi has established herself as a trusted source of financial wisdom. Prachi is committed to empowering her readers with the knowledge they need to make informed financial decisions. Her expertise and dedication shine through in every blog post, helping her audience navigate the intricacies of finance and taxes with confidence. Follow Prachi Jain's blog for practical insights and guidance on managing your finances effectively.
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