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Section 80TTA of the Income Tax Act

Section 80TTA of the Income Tax Act provides crucial tax relief for individual taxpayers by allowing deductions on interest earned from savings accounts.

  • 2,308 Views | Updated on: Mar 13, 2024

Section 80TTA, incorporated into the Indian Income Tax Act in 2013, is designed to offer tax relief to individuals and Hindu Undivided Families (HUFs). This provision permits a deduction of up to ₹10,000 from the taxable income for the interest earned on savings accounts maintained with banks, cooperative societies, or post offices.

A savings account works as a digital piggy bank that accumulates interest on the money in the account. While many individuals possess savings bank accounts, raising awareness about the tax implications of the interest earned on such accounts is necessary. The interest gained on a savings bank account is subject to taxation under the Income from Other Sources category. You should know that a deduction for interest is permissible under section 80TTA. It plays a crucial role in promoting financial inclusion to cultivate sound financial habits.

What is Section 80TTA?

Section 80TTA within the Income Tax Act is a significant provision that provides tax relief to individual taxpayers concerning the interest accrued from their savings accounts. Formulated to promote savings among the public, this section establishes guidelines for seeking deductions and efficiently managing tax responsibilities associated with interest income.

Who is Eligible for Deductions Under Section 80TTA?

Deductions under Section 80TTA are applicable to both Individuals and Hindu Undivided Families (HUF). Non-Resident Indians (NRIs) can also take advantage of the Section 80TTA deduction. It is important to note that NRIs are permitted to open only two types of accounts in India, namely NRE (Non-Residential External) and NRO (Non-Residential Ordinary) accounts. However, only holders of NRO savings accounts are eligible to claim the benefit of Section 80TTA since interest earned on NRE accounts is exempt from taxation.

What Types of Interest Incomes Qualify for Deduction Under Section 80TTA?

According to Section 80TTA of the Income Tax Act, 1961 in India, individuals and Hindu Undivided Families (HUFs) can claim a deduction on interest income from specific sources. The deduction is applicable for interest earned, with a maximum limit of ₹10,000. The following are the types of interest incomes permitted as deductions under Section 80TTA:

Savings Account Interest

The deduction under Section 80TTA pertains to interest earned on savings bank accounts. This includes interest accrued on deposits in a savings account held with a bank, cooperative society, or post office.

Cooperative Society Deposit Interest

Interest earned on deposits in a cooperative society is also eligible for the deduction under Section 80TTA. However, this applies exclusively to deposits made with a cooperative society engaged in the banking business.

What is the Maximum Deduction Permitted Under Section 80TTA?

The maximum deduction permitted under Section 80TTA is capped at ₹10,000. If your interest income is below ₹10,000, the entire interest income becomes eligible for deduction. However, if your interest income exceeds ₹10,000, your deduction will be restricted to ₹10,000. It is important to aggregate your total interest income from all banks if you possess multiple accounts.

How to Avail Deduction Under Section 80TTA?

Begin by combining your overall interest income and include it under the category ‘Income from Other Sources’ in your tax return. Compute your gross total income for the fiscal year, including all income categories, and then designate the applicable amount as a deduction under Section 80TTA. Here is an example of deductions under Section 80TTA:

Name

Total Income (₹)

Interest Income (₹)

Deduction Claimed under Section 80TTA (₹)

Rajesh Kumar

600,000

8,500

8,500

Sunita Sharma

800,000

12,000

10,000

Arjun Singh

550,000

9,500

9,500

Priya Patel

720,000

15,000

10,000

  • Rajesh Kumar is eligible to claim the entire interest income of ₹8,500 as a deduction under Section 80TTA since it falls below the maximum limit of ₹10,000.
  • Sunita Sharma, with an interest income of ₹12,000, can claim a deduction of ₹10,000 under Section 80TTA, surpassing the maximum limit.
  • Arjun Singh, has an interest income of ₹9,500, which falls below the maximum deduction limit, allowing him to claim the full amount of ₹9,500.
  • Priya Patel’s interest income of ₹15,000 exceeds the maximum deduction limit, enabling her to claim a deduction of ₹10,000 under Section 80TTA.

It is crucial to be aware that you cannot claim a Section 80TTA deduction if you choose the new tax regime as per Section 115BAC.

Is it Possible for NRIs to Avail of a Deduction Under Section 80TTA?

Similar to resident Indians, Non-Resident Indians (NRIs) have the eligibility to claim a deduction under Section 80TTA.

NRIs have the option to open NRE (Non-Residential External) and NRO (Non-Residential Ordinary) accounts in India. While the interest earned on NRE accounts is exempt from taxation, it’s important to note that the benefit under Section 80TTA is applicable exclusively to NRO savings accounts. No deduction is permitted on NRO term deposits (fixed deposits).

Wrapping Up

Section 80TTA of the Income Tax Act emerges as a valuable tool for taxpayers seeking to optimize their savings and reduce their tax liabilities. As a manifestation of the government’s commitment to financial inclusion and responsible financial practices, Section 80TTA empowers individuals to make informed decisions and contribute to a more financially literate society. Understanding and leveraging the benefits of Section 80TTA can significantly impact an individual’s financial well-being and tax planning strategies.

Key Takeaways

  • Section 80TTA offers a deduction of up to ₹10,000 on interest income earned from savings accounts, promoting savings among taxpayers.
  • This deduction is available to individual taxpayers and Hindu Undivided Families (HUFs), providing a broad eligibility spectrum.
  • Non-Resident Indians (NRIs) can also avail of the deduction under Section 80TTA, but it applies exclusively to interest earned on NRO (Non-Residential Ordinary) savings accounts.
  • The deduction encompasses interest earned from savings accounts with banks, cooperative societies engaged in banking, and post offices.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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