Our Indian Government has always encouraged the citizens of India to open a savings account with banks even if with a very small deposit amount. A matter of fact which is unknown to many of us is that the interest which we obtain by opening a savings bank account is taxable.
During the earlier period, the rate of interest obtained on the savings account was 4% and then it was 6% in the year 1992. From the year 2003-2011, the rate of interest on the savings account was 3.5%. Later on, the RBI started de-regulation of interest rates on Savings Account in India and since then banks have been fixing their interest rates for the savings account.
Since Government is charging taxes on the income obtained from the various rates of interest on Savings account; it has also provided certain tax benefits as well. Every common man in India has a motive of saving taxes and Section 80TTA plays an important role in tax saving.
Interest on a savings account is taxable as per the applicable slab rates for individuals.
However, considering the genuine hardship faced by middle-class taxpayers. The income-tax department has provided relief to them by introducing a new section 80TTA for deduction of interest on savings account with effect from 1st April 2012.
Taxpayers can enjoy this benefit on interest earned on:
- Saving Bank Account (including co-operative banks)
- Post Office savings account.
However the taxpayer is requested to note that this is a deduction and not an exemption. Therefore, interest earned on savings account would first be included in the Gross Total income of an assessee under “Income from Other Sources” and then it would be allowed as a deduction as per section 80TTA. The total deduction allowed does not exceed Rs 10,000/-
No deduction U/s. 80TTA is allowed for the interest earned on Fixed deposit and hence it is taxable as per the normal slab rates of the recipient individual taxpayer. Moreover, TDS @10% is also deducted on the interest on fixed deposit if the interest earned is more than Rs. 10,000.
From F.Y. 2018-19 (A.Y. 2019-20), the deduction under this section will be available only to individuals other than senior citizens and very senior citizens). Deduction for senior citizens will be allowed under section 80TTB upto Rs. 50,000/- for interest on savings account and deposits.
Salient Features of Section 80TTA
Let us have a look at the important features of Section 80TTA.
Section 80TTA is included in Chapter VI A of the Income Tax Act. Due to the nature of the deduction under this section, they are known as income-based deductions. In every year Annual budget, certain changes are made to laws so as to get aligned with the changing trends but no changes have been made into Section 80TTA in the Union Budget 2018.
The deductions that are allowed on interest earned from Savings Account are applicable only for individuals or Hindu Undivided family. As said earlier, the deduction allowed is limited up to Rs. 10,000 per annum. An individual may be having multiple savings accounts with different banks. However, the cumulative interest income obtained from all those savings accounts should be less than Rs. 10,000 to obtain the tax deduction.
Suppose, the cumulative interest income is more than Rs. 10,000 then the taxpayer can claim tax exemption only for Rs.10, 000 only and not more. The amount which can be said as the additional income will be subject to Income tax. The tax deductions that are allowed under the Section 80TTA is considered to be over and above the deductions of Rs.1.5 lakhs which is usually deducted under the Section 80C.
If the gross total income of an individual is less than the minimum taxable income, then the benefit from Section 80TTA cannot be availed even if the income from interest on Savings Account is more than Rs. 10,000. For example, if your income is Rs. 200,000 for a particular financial year; then you are not liable to pay any income tax. From that income of Rs. 200,000 the income from interest is equal to Rs. 50,000; still there is no scope for payment of Income-tax and application of Section 80TTA. In this case, you do not need to file an IT return.
Chapter VI A of the Income Tax Act
As said earlier, Section 80TTA is categorized under Chapter VI A of the Income Tax Act, 1961. Chapter VI A has Sections from 80A to 80U and these sections describe the various tax deductions from the gross total income of a tax-payer.
Amongst the several sections present under Chapter VIA, one important section is Section 80DDB. Section 80DDB describes the tax deductions that are meant for specified diseases and ailments for individual tax-payers and Hindu undivided family.
Section 80DDB states that if an individual taxpayer or Hindu undivided family has incurred certain expenses for the treatment of specified diseases and ailments, then those expenses are eligible for tax deduction subject to the specified terms and conditions. Those diseases or ailments which are covered under Section 80DDB are the same as those of 11 DD of Income Tax Rules, 1962. Some of the diseases covered under Rule 11DD can be mentioned as below.
- Malignant Cancer
- Hemophilia or Thalassaemia
- Neurological diseases like Dementia, Motor Neuron Disease, Chorea, Ataxia, Aphasia, etc.
To claim the deduction on diseases as per the Section 80DDB, the taxpayer has to provide medical proof for the need of the treatment and medical proof that the treatment has been done actually.
Tax exemption- Post Office savings bank interest
Tax exemption can be levied on Post Office Savings Bank interest under Section 10(15) (i). This section allows a tax exemption up to Rs.3500 on individual accounts and an exemption of up to Rs.7000 on joint accounts. As a result of the cumulative impact of both Section 10(15) (i) and Section 80TTA, taxpayers can claim the deduction of Section 10(15) (i) along with the deductions of Section 80TTA.
Documents required for deduction under Section 80TTA
There are not many documents needed for claiming tax deduction under Section 80TTA. Your bank statements showing your transactions of savings account are the only necessary documents for calculating the interest earned and the deductions.
There are certain exclusions for the deductions under Section 80TTA. Deductions under Section 80TTA will not be permitted for any interest earned on fixed deposits. Interest on fixed deposits is taxable according to the normal Income Tax slab. Moreover, these deductions are also not applicable for interest earned on recurring deposits
Hence, the deductions allowed under Section 80TTA are an excellent means for tax saving and help in reducing the burden of tax payment up to a large extent. Those taxpayers who belong to small earning income groups are the most benefit from these permissible deductions under Section 80TTA.
- Is the deduction under Section 80TTA permissible for citizens above the age of 60?
Yes, citizens who are above the age of 60 are allowed to avail the deductions on savings account interest since there is no such clause for any particular age group.
- Is the TDS provision applicable for Savings Bank Account?
An NRO i.e. Non-Resident Ordinary Savings Account is liable for TDS at the rate of 30.9%. However, general savings accounts are not liable for TDS.
- Is it permissible for an NRI to claim deductions under Section 80TTA?
Yes, an NRI can claim deductions under Section 80TTA.