What is Section 80TTA which covers interest on savings a/c?

Section 80TTA of the Income Tax Act, 1961 allows for a deduction of up to Rs. 10,000 on income earned from interest on savings accounts in banks, co-operative societies, or post offices. However, this deduction does not apply to interest earned from fixed deposits or recurring deposits.

Note: You can claim the Section 80TTA deduction only if you choose the old tax regime, as the new regime is now the default option.

Who is Eligible to Claim a Deduction on bank interestUnder Section 80TTA?

In order to claim a deduction under section 80TTA only Individuals
and HUFs are eligible.

Can NRIs Avail of a Deduction under 80TTA?

NRIs are eligible for a deduction under Section 80TTA as well. It's important to highlight that NRIs can open only two types of accounts in India:

NRE and NRO accounts. However, the benefit of Section 80TTA is available only to those holding NRO savings accounts, as the interest earned on NRE accounts is exempt from tax.

Which Types of Interest Income Are Eligible for Deduction Under Section 80TTA?

You can claim a deduction for interest income earned from the following sources:

1) Savings account with a bank

2) Savings account with a co-operative society engaged in banking business

3) Savings account with a post office

Types of Interest Income Not Eligible for Deduction Under Section 80TTA

The deduction under Section 80TTA is not applicable to the following types of interest income:

1) Interest from fixed deposits
2) Interest from recurring deposits
3) Interest from time deposits (deposits repayable after a fixed period)
4) Interest earned on corporate bonds and debentures
5) Interest from Provident Fund deposits 6) Interest from lending business

Maximum Interest Amount Allowed As Deduction on bank account Under Section 80TTA

The maximum deduction under Section 80TTA is capped at Rs. 10,000. If your interest income is less than Rs. 10,000, you can claim the full amount as a deduction. However, if your interest income exceeds Rs. 10,000, the deduction will be limited to Rs. 10,000. (Remember to calculate the total interest income from all your bank accounts if you hold multiple accounts.)

How to Avail the Interest on Savings a/c deduction Under Section 80TTA?

Start by adding your total interest income under the section ?Income from Other Sources? in your tax return. Next, calculate your gross total income for the financial year from all income sources and then claim the deduction under Section 80TTA.

Case study on 80TTA: Interest on Savings a/c

If Mr. B has a salary income of Rs. 6,00,000, interest from a savings account with a bank is Rs. 8,000, and interest from fixed deposits is Rs.12,000 in a financial year. Total amount that can be claimed as deduction u/s 80TTA is Rs. 8,000 as it is within the threshold limit prescribed ?Rs. 10,000?. Interest on Fixed Deposit cannot be claimed as deduction under this Section.